Scenario Expected Return

Probability-weights bear, base, and bull IRRs and equity multiples into an expected return, compared against a required hurdle. Inputs are a probability, IRR, and equity multiple for each scenario plus the hurdle rate.

Interactive Tool

Bear case

Probability

IRR

Equity multiple

Base case

Probability

IRR

Equity multiple

Bull case

Probability

IRR

Equity multiple

Required return (hurdle)

Expected IRR

10.5%

probability-weighted

Expected multiple

1.52x

probability-weighted

The 10.5% expected return is +3.5 pp versus the 7.0% hurdle. The spread is the compensation for the extra risk, confirm it is wide enough for the downside being taken.

Learn the concept

This calculator comes from the free Real Estate Finance course, where the concept is taught with readings, worked examples, and practice questions.

Open Real Estate Finance

Built by Devon Coombs, CPA, MBA, Teaching Professor of Finance at Santa Clara University.