Mali company has a contract to sell 350 bikes to a customer for $200 each and the customer has the right to return the bikes within 30 days for a full refund. Based on past experience the Mali places the following probabilities on the number of bikes the customer is expected to return:

Number of bikes returned                     Probability of outcome  

  0                                                              35%  

  1                                                              10%  

  2                                                              18%  

  3                                                              12%  

  4                                                               25%  

Required:

Using the 'expected value' method, calculate the amount of revenue received from customers? Your calculations will be different  should you use most likely method. Which method would Mali prefer and why?

Answer rating: 100% (QA)

To calculate the expected revenue received from customers using the expected value method we need to ... View the full answer