Question

A project has three possible outcomes. The NPV and probabilities for each outcome are shown below:

CASE:	NPV:	Probability
BAD	-$4,000	0.20
AVERAGE	$500	0.50
GREAT	$10,000	0.30

What is the expected NPV for this project if our assumptions are correct?

Question 24 options:

	$1,050
	$2,450
	$4,250
	$2,167
	$600

Answer 1

What is the expected NPV for this project if our assumptions are correct?

Answer: $2,450

Working

Formula for calculating expected NPV is as follows

Expected NPV = Total of (NPV * Probability)

                                = (-$4,000 * .20) + ($500 * .50) + ($10,000 * .30)

                                = -$800 + $250 + $3,000

                                = $2,450