ABC Corporation is considering launching a new product, and its risk management team has estimated the following
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Question:
ABC Corporation is considering launching a new product, and its risk management team has estimated the following probabilities and outcomes for the product's net present value (NPV):
NPV | Probability |
---|---|
$200,000 | 0.10 |
$100,000 | 0.30 |
$0 | 0.40 |
-$150,000 | 0.20 |
Calculate the expected NPV, the standard deviation of the NPV, and the coefficient of variation (CV) for the project.
Assume that the risk-free rate is 3%, the company's cost of capital is 12%, and the project has a lifespan of three years.
What would be the minimum net present value that the project must generate for it to be considered financially viable?
Related Book For
Management Accounting Information for Decision-Making and Strategy Execution
ISBN: 978-0137024971
6th Edition
Authors: Anthony A. Atkinson, Robert S. Kaplan, Ella Mae Matsumura, S. Mark Young
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