Anderson Heating and Cooling anticipates that cash flows from home heating fuel sales next year will be $800,000 if the winter is mild, $1 000,000 if winter is average and $1 500,000 if winter is exceptionally cold.The probability of an average winter is 60%, while the probability of either a mild or an exceptionally cold winter is 20%.What is Anderson's expected cash flow from fuel sales next winter?
A)$1 060,000
B)$1,100,000
C)$1,000,000
D)$1,150,000

Question

Quizplus · Accepted Answer

The expected cash flow is calculated by multiplying each cash flow by its probability and summing the results: (0.2 * $800,000) + (0.6 * $1,000,000) + (0.2 * $1,500,000) = $1,060,000.

Anderson Heating and Cooling Anticipates That Cash Flows from Home