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The following table shows profit estimates for a company under different economic scenarios. Using this data, calculate the expected return (in AS) (Please round your answer to zero decimal places) Scenario Probability of return Weak economy Normal economy Strong economy New profit from given scenario (AS) (2,000,000) 500,000 4,000,000 60% 30% 10%

Question

The following table shows profit estimates for a company under different economic scenarios. Using this data, calculate the expected return (in AS) (Please round your answer to zero decimal places) Scenario Probability of return Weak economy Normal economy Strong economy New profit from given scenario (AS) (2,000,000) 500,000 4,000,000 60% 30% 10%

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Solution

To calculate the expected return, you need to multiply each scenario's profit by its probability and then sum up these values.

For a weak economy: -2,000,000 AS * 60% = -1,200,000 AS

For a normal economy: 500,000 AS * 30% = 150,000 AS

For a strong economy: 4,000,000 AS * 10% = 400,000 AS

Then, add these values together:

-1,200,000 AS + 150,000 AS + 400,000 AS = -650,000 AS

So, the expected return is -650,000 AS.

This problem has been solved

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