Question

For each of the following, determine the expected cash flows. (Round answers to 0 decimal places, e.g. 5,275. Show amounts that decrease cash flow with either a - sign e.g. -15,000 or in parenthesis e.g. (15,000).)

		Cash Flow			Probability
		Estimate			Assessment
(a)		$4,100			30	%
		6,000			50	%
		7,800			20	%
(b)		$5,500			20	%
		8,500			50	%
		9,400			30	%
(c)		$(1,400)			10	%
		4,000			65	%
		5,400			25	%

		Total Expected Value
(a)		$enter a dollar amount rounded to 0 decimal places $
(b)		$enter a dollar amount rounded to 0 decimal places $
(c)		$enter a dollar amount rounded to 0 decimal places $

Answer 1

Total Expected Value = (C1 * P1) + (C2 * P2) + (C3 * P3)

where C = Cash Flows and P = Probability

a) Total expected value = ($4,100 * 30%) + (6,000 * 50%) + (7,800 * 20%)

= $1,230 + $3,000 + $1,560

= $5,790

b) Total Expected value = ($5,500 * 20%) + ($8,500 * 50%) + ($9,400 * 30%)

= $1,100 + $4,250 + $2,820

= $8,170

c) Total expected value = [ ($1,400) * 10% ] + ($4,000 * 65%) + ($5,400 * 25%)

= ($140) + $2,600 + $1,350

= $3,810