eBook

Scenario Analysis

Shao Industries is considering a proposed project for its capital budget. The company estimates the project's NPV is $$12$ million. This estimate assumes that the economy and market conditions will be average over the next few years. The company's CFO, however, forecasts there is only a $50\%$ chance that the economy will be average. Recognizing this uncertainty, she has also performed the following scenario analysis:

Economic Scenario Probability of Outcome NPV

Recession $0\mathrm{.}05-$$$64$ million

Below average $0\mathrm{.}20-16$ million

Average $0\mathrm{.}5012$ million

Above average $0\mathrm{.}2022$ million

Boom $0\mathrm{.}0532$ million

What are the project's expected NPV$,$ standard deviation, and coefficient of variation? Enter your answers for the NPV and standard deviation in millions. For example, an answer of $$1\mathrm{.}24$ million should be entered as $1\mathrm{.}24,$ not $1,240,000.$ Do not round intermediate calculations. Round your answers to two decimal places.

E$($NPV$)$: $

million

$\backslash$sigma NPV: $

million

CVNPV: