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The Yoran Yacht Company ( YYC ) , a prominent sailboat builder in Newport, may design a new 3 0 - foot sailboat based on
The Yoran Yacht Company YYC a prominent sailboat builder in Newport, may design a new foot sailboat based on the "winged" keels first introduced on the meter yachts that raced for the America's Cup.
First, YYC would have to invest $ at t for the design and model tank testing of the new boat. YYCs managers believe there is a probability that this phase will be successful and the project will continue. If Stage is not successful, the project will be abandoned with zero salvage value.
The next stage, if undertaken, would consist of making the molds and producing two prototype boats. This would cost $ at t If the boats test well, YYC would go into production. If they do not, the molds and prototypes could be sold for $ The managers estimate that the probability is that the boats will pass testing and that Stage will be undertaken.
Stage consists of converting an unused production line to produce the new design. This would cost $ million at t If the economy is strong at this point, the net value of sales would be $ million; if the economy is weak, the net value would be $ million. Both net values occur at t and each state of the economy has a probability of YYCs corporate cost of capital is
Assume this project has average risk. Construct a decision tree and determine the project's expected NPV Do not round intermediate calculations. Enter your answer in dollars. For example, an answer of $ million should be entered as Round your answer to the nearest cent.
$
Find the project's standard deviation of NPV and coefficient of variation of NPV Do not round intermediate calculations. Enter your answer for standard deviation in dollars. For example, an answer of $ million should be entered as Round the project's standard deviation to the nearest cent and CV to two decimal places.
sigma NPV: $
CVNPV:
If YYCs average project had a CV of between and would this project be of high, low, or average standalone risk?
This project is of
high
risk.
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