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Shao Industries is considering a proposed project for its capital budget. The company estimates the projects NPV is $12 million. This estimate assumes that the economy and market conditions will be average over the next few years. This companys CFO, however, forecasts there is only a 50% chance that the economy will be average. Recognizing this uncertainty, she has also performed the following scenario analysis.

Economic Scenario Probability of Outcome NPV

Recession 0.05 -$70 million

Below average 0.20 - 25 million

Average 0.50 12 million

Above average 0.20 20 million

Boom 0.05 30 million

What is the projects expected NPV, in standard deviation, and coefficient of variations?

Basic Finance, Finance

  • Category:- Basic Finance
  • Reference No.:- M943036

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