You are trying to decide if you should rent an ice cream truck to drive around t

Question

You are trying to decide if you should rent an ice cream truck to drive around the city park to help pay for your college tuition. Assume that it costs $280 per day to rent the truck and pay the driver's wages. Your marketing data show that if it does not rain, you can expect profits of $150 per day (after paying all expenses including the truck rental and the driver's wages). If it rains, then expected profits fall to $30 per day. Based on historical weather data, you can expect the weather to be rainy 35 percent of the time. What is your expected daily rate of return on the rental cost of the truck and driver?

Instructions: Round your answer to 1 decimal place.

Explanation / Answer

Consider the given problem here the person will get “150 per day” if it doesn’t rain with probability “0.75” and “30 per day” with probability “0.35”. So, the expected daily rate of return is given by.

=> ER = 0.75*150 + 0.35*30 = 123. Now, the daily cost is “280”, => the expected rate of return on the rental cost of truck and driver is given by, “(123*100/280) = 43.9%”.

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