An analyst computes the intrinsic values and probabilities for each of the indicated scenarios in the following table.Determine the expected value per share. $$\begin{array} { | l | l | l | l | }
\hline \text { Scenario } & \begin{array} { l }
\text { Intrinsic value } \
\text { (millions) }
\end{array} & \text { Probability } & \
\hline \begin{array} { l }
\text { Success in both domestic } \
\text { and international markets }
\end{array} & 1200 & 0.4 & \
\hline \text { Success in domestic market only. } & 600 & 0.2 & \
\hline \text { Success in int emational market only. } & 800 & 0.3 & \
\hline \text { Failure in both markets } & 0 & 0.1 & \
\hline { \text { Expected intrinsic value (millions): } } & \
\hline \text { Shares outsta nding } 50 \text { million } & \text { Expected share price } & \
\hline
\end{array}$$

Question

An analyst computes the intrinsic values and probabilities for each of the indicated scenarios in the following table.Determine the expected value per share. $$\begin{array} { | l | l | l | l | } 
\hline \text { Scenario } & \begin{array} { l } 
\text { Intrinsic value } \
\text { (millions) }
\end{array} & \text { Probability } & \
\hline \begin{array} { l } 
\text { Success in both domestic } \
\text { and international markets }
\end{array} & 1200 & 0.4 & \
\hline \text { Success in domestic market only. } & 600 & 0.2 & \
\hline \text { Success in int emational market only. } & 800 & 0.3 & \
\hline \text { Failure in both markets } & 0 & 0.1 & \
\hline { \text { Expected intrinsic value (millions): } } & \
\hline \text { Shares outsta nding } 50 \text { million } & \text { Expected share price } & \
\hline
\end{array}$$

Quizplus · Accepted Answer

To calculate the expected intrinsic value per share, multiply each scenario's intrinsic value by its probability, sum these products, and then divide by the number of shares outstanding. The calculation is as follows:$$ \text{Expected Value} = \frac{(1200 \times 0.4) + (600 \times 0.2) + (800 \times 0.3) + (0 \times 0.1)}{50} $$$$ \text{Expected Value} = \frac{(480) + (120) + (240) + (0)}{50} $$$$ \text{Expected Value} = \frac{840}{50} = 16.8 $$Therefore, the expected value per share is $16.80.

An Analyst Computes the Intrinsic Values and Probabilities for Each