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Dallas Health encounters significant uncertainty with its sales volume and price in its primary product. The firm uses scenario analysis in order to determine an
Dallas Health encounters significant uncertainty with its sales volume and price in its primary product. The firm uses scenario analysis in order to determine an expected NPV, which it then uses in its budget. The base case, best case, and worst case scenarios and probabilities are provided in the table below. What is Dallas's expected NPV, standard deviation of NPV, and coefficient of variation of NPV? Sales Prob price NPV Worst case 0.2 $22,500 ($14,000) Expected case 0.5 $28,400 $27,000 Best case 0.3 $32,600 $44,000 Spreadsheet solution: E(NPV) Var(NPV) SD(NPV) CV(NPV) A B C D E F G H 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21
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