Rheem Manufacturing Co.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 Rheem's expected cash flow from fuel sales next winter?

Question

Quizplus · Accepted Answer

Expected cash flow = (0.20 x $800,000) + (0.60 x $1,000,000) + (0.20 x $1,500,000) = $1,060,000