Question
Company X is considering a project with the expected cash flows being conditioned by the state of the economy. The company places a probability of
Company X is considering a project with the expected cash flows being conditioned by the state of the economy. The company places a probability of 0,50 to the chance of the economy retracting and going into a state of recession, in which case the company expects the project to yield cash flows of only R50. A probability of 0,25 is associated with low growth, which is expected to lead to cash flows of R60 per year. Finally, a probability of 0,25 is associated with the economy expanding rapidly which it is expected will lead to cash flows of R80 per annum. Determine the expected return, variance, standard deviation and coefficient of variation associated with the cash flows generated by the proposed project.
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