Firm X is considering a project and its analysts have projected the following outcomes and their probabilities. OutcomeProbability of OutcomeAssumptions$4,600 30%pessimistic$7,800 45%moderately successful$13,500 25%optimistic What is the expected value of the outcomes?

Expected income is also called the expected return. It is the profit or loss expected to be…

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What is the expected value of the outcomes?

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter8: Analysis Of Risk And Return

Section: Chapter Questions

Problem 2P

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Concept explainers

Risk Management Techniques

Risk management is the procedure of recognizing, analyzing, monitoring, and preventing the risks and threatening factors of investments and business. Risks can arise from various factors including internal controls, market changes, natural disasters, and failure in productions. Risk management techniques enable entities to control and minimize the risks as well as the threatening factors of the business and it also helps to improve the business.

Question

Firm X is considering a project and its analysts have projected the following outcomes and their probabilities.

Outcome	Probability of Outcome	Assumptions
$	4,600		30%	pessimistic
$	7,800		45%	moderately successful
$	13,500		25%	optimistic

What is the expected value of the outcomes?

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