Firm X is considering a project and its analysts have projected the following outcomes and their probabilities.
$$\begin{array}{l}
\begin{array} { r c ll }
&\text { Probability of }\
\text { Outcome } & \text { Outcome } & &\text { Assumption }\
\$4,600 & 30 \% & \text { pessirmstic } \
\$7,800 & 45 \% & \text { moderately swccessful } \
\$13,500 & 25 \% & \text { optimistic }
\end{array}
\end{array}$$
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.
$$\begin{array}{l}
\begin{array} { r c ll } 
&\text { Probability of }\
\text { Outcome } & \text { Outcome } & &\text { Assumption }\
\$4,600 & 30 \% & \text { pessirmstic } \
\$7,800 & 45 \% & \text { moderately swccessful } \
\$13,500 & 25 \% & \text { optimistic }
\end{array}
\end{array}$$
What is the expected value of the outcomes?

Quizplus · Accepted Answer

The expected value is calculated by multiplying each outcome by its probability and summing the results: (0.30 * $4,600) + (0.45 * $7,800) + (0.25 * $13,500) = $8,265.

Firm X Is Considering a Project and Its Analysts Have