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MC Question 17

Tree Co is considering employing a sales manager. Market research has shown that a good sales manager can increase profit by 30%, an average one by 20% and a poor one by 10%. Experience has shown that the company has attracted a good sales manager 35% of the time, an average one 45% of the time and a poor one 20% of the time.

The company’s normal profits are $180,000 per annum and the sales manager’s salary would be $40,000 per annum.

Based on the expected value criterion, which of the following represents the correct advice which Tree Co should be given?

A. Do not employ a sales manager as profits would be expected to fall by $1,300
B. Employ a sales manager as profits will increase by $38,700
C. Employ a sales manager as profits are expected to increase by $100
D. Do not employ a sales manager as profits are expected to fall by $39,900