AFM481 Study Guide - Final Guide: Fixed Cost, Orillia, Earnings Before Interest And Taxes

• School: University of Waterloo
• Department: Accounting & Financial Management
• Course: AFM481
• Professor: Christine Dupont

Document Summary

Chapter 3: give me examples of businesses that would be negatively impacted by a recession. You need to decide whether to expand your business or not. You are more optimistic than the average canadian cfo. Based upon previous recessions, and your assessment of how the politicians will make decisions, you make the following predictions: there is a 20% chance of a slump, 50% of no change in the economy, and 30% of growth. If the economy slumps, you will lose . If the econ omy has no change, you will make . If the economy grows, you will make ,000. If the economy slumps, you will lose . If the economy has no change, you will make . Ev expand = 0. 2*-400 + 0. 5*200 + 0. 3*2,000 = . H int: choose best ev for each state of the economy, because fut u re state is known (perfect foresight). Ev with knowledge = 0. 2* -250 + 0. 5*500 + 0. 3*2,000 = 800.