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
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?
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Management Accounting Information for Decision-Making and Strategy Execution
Authors: Anthony A. Atkinson, Robert S. Kaplan, Ella Mae Matsumura, S. Mark Young
6th Edition
137024975, 978-0137024971
