Firm X is considering a project and its analysts have projected the following outcomes and their probabilities. What is the expected value of the outcomes?

Question

Firm X is considering a project and its analysts have projected the following outcomes and their probabilities.  What is the expected value of the outcomes?

Quizplus · Accepted Answer

The expected value is calculated by multiplying each possible outcome by its probability and then summing up all the products. This gives us (5,000 x 0.2) + (7,500 x 0.3) + (10,000 x 0.1) + (12,500 x 0.2) + (15,000 x 0.2) = $8,873. Therefore, the best choice is C.

Firm X Is Considering a Project and Its Analysts Have