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Sharpe Knife Company expects sales next year to be \(1,550,000 if the economy is strong, \)825,000 if the economy is steady, and $550,000 if the economy is weak. Mr. Sharpe believes there is a 30 percent probability the economy will be strong, a 40 percent probability of a steady economy, and a 30 percent probability of a weak economy. What is the expected level of sales for the next year?

Short Answer

Expert verified

The expectedlevel of sales for next year isl$960,000.

Step by step solution

01

Information given in the question

The following information is provided:

Expected sales whentheeconomy is strong = $1,550,000

Expected sales whentheeconomy is steady = $825,000

Expected sales whentheeconomy is weak = $550,000

Probability of strong economy = 30%

Probability of steady economy = 40%

Probability of weak economy = 30%

02

Expected sales for next year

The expected level ofsales for next year is $960,000

Expectedsalesfornextyear=Expectedsales×Probability=1,550,000×30%+825,000×40%+550,000×30%=$465,000+330,000+165,000=$960.000

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Most popular questions from this chapter

Assume that Atlas Sporting Goods Inc. has \(840,000 in assets. If it goes with a low-liquidity plan for the assets, it can earn a return of 15 percent, but with a high-liquidity plan the return will be 12 percent. If the firm goes with a short-term financing plan, the financing costs on the \)840,000 will be 9 percent, and with a long-term financing plan, the financing costs on the $840,000 will be 11 percent. (Review Table 6-11 for parts a, b, and c of this problem.)

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