Question
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
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 | 0.05 | -$64 million |
Below average | 0.20 | -10 million |
Average | 0.50 | 12 million |
Above average | 0.20 | 22 million |
Boom | 0.05 | 32 million |
What are the project's expected NPV:
standard deviation:
coefficient of variation:
Enter your answers for the NPV and standard deviation in millions. For example, an answer of $1.24 million should be entered as 1.24, not 1,240,000. Do not round intermediate calculations. Round your answers to two decimal places.
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