Q.6. A project with an initial outlay of OMR1m has a 0.3 probability of producing a return of OMR800,000 in year 1 and a 0.7 probability of delivering a return of OMR600,000 in year 1. If the OMR800,000 result occurs then the second year could return either OMR700,000 (probability of 0.4) or OMR300,000 (probability of 0.6). If the OMR600,000 for year 1 occurs then either OMR600,000 (probability of 0.8) or OMR400,000 (probability of 0.2) could be received in the second year. All cash flows occur on anniversary dates. The discount rate is 11 per cent. (a) Calculate the expected return and standard deviation. (b) What is the type of probability displayed in this question?

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Production Budget

A budget can be defined as a financial plan designed by an undertaking for a definite period in the future that can contribute towards enhancing the financial success of the business undertaking. It is used to estimate the revenue and expenses. The budget generally takes into account both current and future income and expenses.