Walter Brown is looking to open a new French fries store located in the neighborhood where he resides. He has been thinking about this project for a while. He has completed the technical, legal, and economic feasibility studies in order to decide properly. The economic study presented him with the following financial forecasts:

$$ The project will last $5$ years.

$$ The price of an average package of fries should be $$6$ per unit. Under the current conditions, it is not expected that the price will change over the life of the project.

$$ The store is expected to sell $20,000$ units the first year, with an annual growth of $5\%$ in the units sold.

$$ The main variable costs are pre$-$fry potatoes, canola oil, mayo, mustard, ketchup, fries$$ containers, napkins and plastic silverware. The economic study has also found that the variable costs should be $40\%$ of the sales revenues.

$$ The main fixed costs are rent $($$$10,000/$year$),$ utilities $($$$5,000/$year$),$ and gross salaries for two part$-$time employees $($$$10,000/$year$).$ In summary, it is expected that the fixed costs will be $$25,000$ per year. It is not expected that those fixed costs will change considerably over the life of the project.

$$ The initial investment has to finance the purchase of the frying equipment, the fridge, the freezer, furniture for customers $($tables and chairs$),$ the cash register, and some long$-$term kitchen tools. It is expected that the capital expenditures should cost $$200,000.$

$$ The project has to purchase its first batch of inventory $($pre$-$fry potatoes, fries$$ containers, napkins, etc.$)$ in order to begin selling French fries as soon as the business starts to operate. At the moment of the inventory purchase $($t$=0),$ the French fries store has not generated any income, because it is not in operation yet, but still it has to pay to its providers in the short$-$term. The required initial investment in inventory $($change net operating working capital$)$ is expected to be $$20,000$ and it will be fully financed with cash.

$$ The IRS has stated that the refrigerator and freezer and other long$-$term assets should be depreciated linearly in $5$ years, that is$,20\%$ each year.

$$ The corporate income tax rate is $40\%$ of profits.

$$ The residual inventory at the year of closing the project should be sold at the same price of its purchase. Therefore, it does not generate taxable capital gains.

$$ The salvage value of the capital expenditures at the closing year is $$100,000.$ That is$,$ the market price at which the business can expect to receive for selling the fryer, refrigerator, the freezer and the furniture, at the moment of closing the project.

$$ The weighted average cost of capital $($WACC$)$ is $8\%.1.$ Compute the expected value of NPV$,$ the standard deviation of NPV and the coefficient of variation of NPV$.$

$2.$ If you assume a $4\%$ risk adjustment over the cost of capital $(8\%),$ do you still approve the project? Explain.