Question
A software development company is considering launching a new software product. The product has a projected revenue of $500,000 and an expected cost of goods
A software development company is considering launching a new software product. The product has a projected revenue of $500,000 and an expected cost of goods sold of $200,000. The company estimates that there is a 60% chance that the product will be successful, a 30% chance that it will break even, and a 10% chance that it will result in a loss of $50,000. The company has a cost of capital of 12% and a risk tolerance of $100,000. Using expected value and standard deviation, calculate the net present value and coefficient of variation of the project, and provide a recommendation to the company based on your calculations.
Note: Assume that all probabilities are independent. Use a discount rate of 12% for all calculations.
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Managerial Economics A Problem Solving Approach
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