Question
The George Washington Company is considering a proposed capital project for its capital budget. The firm estimates the projects NPV is $10 million. This estimate
The George Washington Company is considering a proposed capital project for its capital budget. The firm estimates the projects NPV is $10 million. This estimate assumes that the economy in market conditions will be average over the next few years. The firm's CFO, however, forecast there is only a 50% chance that the economy will be average. Recognizing this uncertainty shares also performed the following scenario analysis:
Scenario Probability NPV
Boom .25 $20 million
Normal .50 $10 million
Recession .25 $ 4 million
What is the projects expected NPV, standard deviation, and coefficient of variation?
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