Use the information for the question(s) below.
If it is managed efficiently,Luther Industries will have assets with market value of $100 million,$300,million,or $500 million next year,with each outcome being equally likely.Managers may,however,engage in wasteful empire building which will reduce the firm's market value by $20 million in all cases.Managers may also increase the risk of the firm,changing the probability of each outcome to 50%,20%,and 30% respectively.
-If its managers increase the risk of the firm,then the expected market value of Luther's assets is closest to:
A) $260 million.
B) $240 million.
C) $300 million.
D) $280 million.
Correct Answer:
Verified
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