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There is a 60% probability of a project yielding a positive net present value (NPV) of $280,000 and a 30% probability of it yielding a positive NPV of $140,000.
The only other possible outcome is that the project will yield a negative NPV of $160,000.
What is the expected value of the project's NPV?
Suggested Answer: A
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13 comments · newest first
HA
Haley
10 months ago
Wait, how do we know the probabilities are accurate?
LA
Lashawn
10 months ago
I think it's around $194,000, seems right!
MA
Marcelle
11 months ago
I calculated it too, and I got $210,000. What gives?
EL
Elvis
11 months ago
Definitely not $280,000, that's way too high!
AN
Andra
11 months ago
The expected value is calculated using probabilities and outcomes.
KI
Kizzy
11 months ago
I feel like the answer might be around $210,000, but I’m not completely confident in my calculations.
WH
Whitney
12 months ago
I think the expected value should be a weighted average, but I can't recall how to handle the negative NPV in this case.
AL
Aleta
12 months ago
This question feels similar to one we did in class about project evaluations. I think I need to multiply the NPVs by their probabilities first.
MA
Margarita
12 months ago
I remember we practiced calculating expected values, but I'm not sure if I got the probabilities right for each outcome.
FR
France
1 year ago
No problem, I've got this. I'll multiply each outcome by its probability, then add them all together. The expected value should be the answer.
LU
Luke
1 year ago
Wait, I'm a little confused. How do I know which outcome to use for the expected value calculation? Do I just add up all the possible outcomes?
CH
Cherrie
1 year ago
Hmm, this seems straightforward enough. I just need to remember the formula for expected value and plug in the numbers. I think I can handle this.
LO
Lonny
1 year ago
Okay, let's think this through step-by-step. We have three possible outcomes with their respective probabilities. To find the expected value, we need to multiply each outcome by its probability and then add them up.