In a product liability case, a company can settle out of court for a loss of $350,000, or go to trial, losing $1,100,000 if found guilty and nothing if found not guilty. lawyers for the company estimate the probability of a not-guilty verdict to be 0.8. should the company settle out of court? . yes or no?

In order to figure this out, you need to find out the financial expectation.

based on the scenario we know that
The probability of losing is : 0.2
The probability of winning is : 0.8

So the cost of financial expectation is 0.2 x $ 1,100,000 = $ 220,000

$220,000 < $ 350,000

So it's better for the company to go to the Court

hope this helps

Option A is correct $220,000

Hence Infinity's taxable income for year 1 will be $220,000.

Explanation:

Income before tax and depreciation for year 1

= $400,000

Depreciation allowed as per income tax for year 1

= $900,000*20%

= $180,000

Taxable income for year 1

= $400,000 - $180,000

= $220,000