Expected Value Formula

Expected Value Formula

Expected is weighted average value calculated with the help of different probabilities. Expected value is a way to measure the average results.

Expected Value = ∑Px

P=Probability

Value=

Role of Expected Value

Project shall be selected if the expected value of NPV is positive.

Example

Probabilities          NPV

.2                     (30,000)

.3                     20,000

.5                      5,000

Solution

Probabilities          NPV            ∑Px

.2                     (30,000)         (6,000)

.3                      20,000            6,000

.5                      5,000             2,500

Expected Value                      2,500