A Retailer Is Considering Building a Large Store

question 52

Multiple Choice

A retailer is considering building a large store.If the local economy experiences expansion,the firm expects the store to earn a $2,000,000 profit next year.If the local economy experiences a contraction,the firm expects the store to lose $400,000 next year.Analysts estimate a 20% chance for the local economy to experience an expansion next year (hence an 80% chance for contraction) .What is the expected monetary value (EMV) of building the large store?

• A)$1,600,000
• B)$720,000
• C)$2,000,000
• D)$80,000
• E)$1,520,000

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Definitions:

Value-Based Pricing

is a strategy under which the sale price of a product or service is determined primarily by the perceived value to the customer rather than by the cost of production.

Preventive Maintenance

Regular and systematic inspection, cleaning, and replacement of worn parts, materials, and systems to prevent unforeseen failures and maximize efficiency.

Useful Life

The estimated period over which an asset is expected to be usable by the entity owning it, for its intended purpose.

Traceable Fixed Expense

Fixed costs that can be directly linked to a specific department, product, or segment and would disappear if the related operation ceased.