Question

e cost of capital and From a purely bital budget under project cost of capital? 15.7 What is meant by the term capital ration
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Answer #1

a)

Expected NPV = 30,000

Standard Deviation = 236220.24

Please find the below table for further Calculation

Probability NPV Probability * NPV NPV - Expected NPV (NPV - Expected NPV)^2 (NPV - Expected NPV)^2 * Probability
0.05 -700000 -35000 -730000 5.329E+11 26645000000
0.2 -250000 -50000 -280000 78400000000 15680000000
0.5 120000 60000 90000 8100000000 4050000000
0.2 200000 40000 170000 28900000000 5780000000
0.05 300000 15000 270000 72900000000 3645000000
Expected NPV 30000
Total 55800000000
Standard Deviation 236220.2362

b) Base case analysis should use Expected NPV as here we have identified all the possibility probabilities of inflows and expected NPV is based on that. In expected NPV we have also considered probability of negative flows which is ignored in most likely NPV.

Hope this helps, thanks and have a good day. Feel free to share your feedback.

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