Question

Huang Industries is considering a proposed project whose estimated NPV is $12 million. This estimate assumes that economic conditions will be "average." However, the CFO realizes that conditions could be better or worse, so she performed a scenario analysis and obtained these results:

Economic Scenario	Probability of Outcome	NPV
Recession	0.05	($66 million)
Below average	0.20	(16 million)
Average	0.50	12 million
Above average	0.20	18 million
Boom	0.05	34 million

Calculate the project's expected NPV, standard deviation, and coefficient of variation. Enter your answers for the project's expected NPV and standard deviation in millions. For example, an answer of $13,000,000 should be entered as 13. Do not round intermediate calculations. Round your answers to two decimal places.

E(NPV):	million
σNPV:	million
CV:

  

Answer 1

Expected NPV = E Probability of outcome X NPV at that outvorme (4) & Varnance NPV = E(x²) - (E(x)] Standard deviation - Jvariance rautapecevede rodrocentrale Cv = x 100 Standard deviation Expected value of NP Economic scenario Recession Below awg Probability) NPV (*) 0.05 -66 -16 0.5 12 0.2 0.05 34 TOTAL 1 P. x -3.3 -3.2 6 13.6 1:7 6.80 x? P.x2 4356 217.8 1 256 151-2 144 72 324 1 648 1156 57.8 18 Above ang Boom 463.6 ... Expected value of NPV = 4.80 million Variance NPV = 4636- 4.82 - 440.56 Std. der. = √440.56 = 20.99 CV = 20.99 x 100 6.8 = 437.28% or 4.37