Page 288 - P1 Integrated Workbook STUDENT 2018
P. 288
Subject P1: Management Accounting
5.4 Which of the following would be considered by an investor who is risk
averse?
A The overall expected value from the decision
B The standard deviation of the data
C The potential maximax value of the outcomes
D The normal distribution of the data
5.5 An organisation is considering launching a new product, X. If the product is
successful in its first month there will be an opportunity to either make a further
investment or to licence all future development to another company. The
decision for the company is illustrated by the following decision tree:
Profit outcome
High (80%)
$40k
Invest
($8k) Low (20%) $5k
A
Success $10k
(70%) Licence
Failure (30%)
Product X ($6k)
($4k)
The profit outcomes do not include the cost of any investments made.
The expected value at point A on the decision trees is
$_________________
(Your answer should be rounded to the nearest the nearest $)
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