Hello all,

I need serious help with the following problem:

Cineplex Inc is considering two mutually exclusive projects - Cable and Satellite. The Possible NPVs for each project and their associated probabilities are as follows:

Cable: Satellite:

NPV ($000) PROBABILITY NPV($000) PROBABILITY

10 10% 15 60%
20 50% 20 20%
25 40% 40 20%

Calculate the standard deviation for each project. Which project has the higher level of risk?


Question: How am I supposed to calculate the E(R) from the NPV'S?
Help...

The E(R) for each project is just the weighted-average NPV for each, where the 'weights' are the probabilities associated with each outcome.

Simple example: I think there's a 75% chance that my business will have a profit next year of $100, and a 25% chance it'll make $130.

Using the lingo spoken in Probability-ville, my expected profit--or E(Profit)--is $107.50, which was figured this way:

(0.75 x 100) + (0.25 x 130) = $107.50.

Does that help a bit?