A Business Owner Is Trying to Decide Whether to Buy

question 94

Multiple Choice

A business owner is trying to decide whether to buy, rent, or lease office space and has constructed the following payoff table based on whether business is brisk or slow. $$\begin{array} { l | c r } \text { Alternative } & \text { Brisk } & \text { Slow } \\\hline \text { Buy } & 90 & - 10 \\\text { Rent } & 70 & 40 \\\text { Lease } & 60 & 55\end{array}$$ If the probability of brisk business is .40 and for slow business is .60, the expected value of perfect information is:

• A) 12
• B) 55
• C) 57
• D) 69

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Definitions:

Net Income

The total earnings of a company after all expenses and taxes have been subtracted from total revenue.

Ending Inventory

The closing stock value, determined at the end of a financial period, is the sum of the initial inventory and acquisitions, less the cost of goods sold.

Internal Control

Systems and processes designed by a company to ensure integrity and accuracy of financial and accounting information, promote accountability, and prevent fraud.

Inventory Storeroom

A storage area or space used for keeping goods or materials until they are sold or used in production.