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Marat540 [252]
2 years ago
15

A fruit company has 20% returns in periods of normal rainfall and –3% returns in droughts. The probability of normal rainfall is

60% and droughts 40%. What would the fruit company’s expected returns be?
Business
1 answer:
larisa [96]2 years ago
5 0

Answer:

10.8%

Explanation:

The computation of the expected returns is shown below:

= Return in periods of normal rainfall × probability of normal rainfall + return in droughts × probability of droughts

= 20% × 60% + -3% × 40%

= 12% - 1.2%

= 10.8%

Basically we multiplied the returns with its probabilities so that the approximate expected rate of return could come.

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Now, comparing with the total net operating income of both the product ($44,000) with only product 1 ($19,000); overall operating income decreases by $25,000 (44,000-19,000)

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Answer:

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