Edit question A manufacturer is planning to produce and sell a new product. It would cost $20 million at Year 0 to buy the equipment necessary to manufacture the product. The project would require net working capital at the beginning of each year in an amount equal to 15% of the year's projected sales; for example, NWC0 = 15%(Sales1). The product would sell for $30 per unit, and believes that variable costs would amount to $15 per unit. After Year 1, the sales price and variable costs will increase at the inflation rate of 3%. The project's fixed costs would be $500,000/year in Year 1 and would increase with inflation. The products will be sold for 4 years. If the project is undertaken, it must be continued for the entire 4 years. The firm believes it could sell 500,000 units per year. The equipment would be depreciated over using straight-line depreciation. The estimated market value of the equipment at the end of the projects 4-year life is $500,000. The federal-plus-state tax rate is 40%. Its cost of capital is 10%.

1. Now conduct a scenario analysis. Assume that there is a 25% probability that best-case conditions, with each of the variables discussed in Part b being 20% better than its base-case value, will occur. There is a 25% probability of worst-case conditions, with the variables 20% worse than base, and a 50% probability of base-case conditions.

Suppose the average CV of this company's projects is 2.0. Is this project more or less risky than the average project for this company?