A corporation is trying to calculate the probability that it will have positive operating cash flows...
A corporation is trying to calculate the probability that it will have positive operating cash flows this coming year.
It is reasonable to model its operating cash flows as being equal to its sales revenue minus its operating costs. Assume both revenue and cost are normally distributed.
| Variable | Exp. Value | Std. Deviation |
| Revenue | $800 million | $100 million |
| Cost | $600 million | $50 million |
Is the probability of having positive cash flows greater than or
less than 0.95? The correlation coefficient between revenue and
cost is 0.4.
Homework Answers
No, since the correlation coefficient between revenue and cost is 0.4 which is not a good correlation i.e, having low correlation. We can conclude that the probability of having positive cash flows is less than 0.95
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