Huang Industries is considering a proposed project whose estimated NPV is $12 mi

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, $54 million Below average, 0.20, $20 million Average, 0.50, 12 million Above average, 0.20, 14 million Boom, 0.05, 26 million ......... Calculate the project's expected NPV, standard deviation, and coefficient of variation. Round your answers to two decimal places.

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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