Question 1

A renewable energy company is evaluating the potential financial return of a new solar farm project. The analysts have modeled three possible scenarios for the first year's net cash flow:

- Optimistic scenario: $100,000 (Probability: 0.20)
- Most likely scenario: $60,000 (Probability: 0.50)
- Pessimistic scenario: -$20,000 (Probability: 0.30)

Calculate the Expected Value (EV) of the first year's net cash flow.

(Enter the numeric value only, without commas or currency symbols)

Accepted Answer

Multiply each outcome by its probability and sum the results. Be careful with the negative sign on the pessimistic scenario.

Question 2

What mistakes do candidates make on this ACCA question?

Accepted Answer

Adding the pessimistic scenario instead of subtracting it (resulting in $56,000).

How to approach this question

Full Answer

Common mistakes

Practice the full ACCA MA — Management Accounting Practice Exam 5

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