Question

Assume that there are three possible states of the economy: poor, moderate and booming. A firm expects to have $468,000 in sales in a poor economy, $694,000 in a moderate economy, and $915,000 in a booming economy. Suppose the profit margin, for this firm, in a poor economy is 5.6 percent, 11.5 in a moderate economy and 16.5 percent in a booming economy. If the chance of a booming economy is 25% and the chance of a poor economy is 15%, what is the expect amount of profits for the firm?

Answer 1

Solution :

The expected amount of profits for the firm = $ 89,560.95

Please find the attached screenshot of the excel sheet containing the detailed calculation for the solution.