ModeldrillProbability-weighted value
A financial modeling exercise from Modeldrill. Solve it with a live spreadsheet grid in your browser, with Fill right and Fill down, and it is checked the moment you submit.
The task
Three cases each have a probability and an enterprise value. Fill the equity value of each case (column D: enterprise value less the net debt in B2), then the expected enterprise value (B9) and the expected equity value (B10), each as the probability-weighted average of the cases with SUMPRODUCT.
What this exercise teaches
An expected value weights every case by how likely it is, so it sits between the base case and the tails. Because net debt is the same in every case, the expected equity value is also the expected enterprise value less net debt, a quick check on the formulas.
A hint if you get stuck
SUMPRODUCT(probabilities, values) multiplies each case by its probability and adds the results. Lock the net debt in column D.
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