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; -$52 million
Below average 0.20; -18 million
Average 0.50; 12 million
Above average 0.20;18 million
Boom 0.05; 30 million What are the project's expected NPV, standard deviation, and coefficient of variation? Round your answers to two decimal places.
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