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Probability

Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA MA – FIA FMA › Probability

  • This topic has 1 reply, 2 voices, and was last updated 9 months ago by John Moffat.
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    Posts
  • April 8, 2022 at 12:37 pm #652917
    zaramujeeb
    Member
    • Topics: 15
    • Replies: 2
    • ☆

    A project will cost $11.5 million. The forecasted revenue arising for two possible economic conditions are shown in the table below

    Economic condition

    Probability (p)

    Revenue (r) $ million

    (px r) $ million

    Adverse. 0.3 8 2.4
    Favourable 0.7 15 10.5

    Expected value

    12.9

    Which TWO of the following statements are CORRECT?

    1. The forecast suggests that the project will make a profit of $1.4 million
    2. The forecast suggests that the project could make a loss of $9.1 million

    3. If the two economic outcomes were forecast as being equally likely, the expected revenue would match the cost

    4. The forecast suggests that the project could make a loss of $3.5 million

    I am confused should i take only revenue figures when calculating the loss then it becomes 11.5-8=3.5 or should i include probability aswell then 11.5-2.4= 9.1

    Also how can revenue match the cost
    Is my answer 3 and 4 statements correct?

    April 8, 2022 at 3:19 pm #652924
    John Moffat
    Keymaster
    • Topics: 57
    • Replies: 51543
    • ☆☆☆☆☆

    1 is wrong – they will either make a profit of 15 – 11.5 = 3.5, or they will make a loss of 8 – 11.5 = 3.5.

    2 is wrong – see (1)

    3 is correct – see (1) where they could make a loss of 3.5.

    4 is correct – if the outcomes were equally likely, then the expected revenue would be (0.5 x 8) + (0.5 x 15) = 11.5, which is the same as the cost.

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