Scenario analysis Huang Industries is considering a proposed project whose estim

Question

Scenario analysis 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 ($50 million) Below Average 0.20 (14 million) Average 0.50 (12 million) Above Average 0.20 (22 million) Boom 0.05 (30 million) Calculate the project's expected NPV, standard deviation, and coefficient of variation. Round your answers to two decimal places. 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. E(NPV) = $________ million ?NPV = $________ million CV =_________

Explanation / Answer

expected NPV...sum all (probability of scenario * NPV if that scenario) = 4.8mil std dev is sq rt of variance variance = for each economic scenario...(NPV for that scenario - 4.8mil)^2 * probability of that scenario...then sum all = 632.16,... sq rt (std dev) = 25.1428 coeff of variation = std dev / expected value = 25.1428 / 4.8 = 5.238

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