Question
When conducting further analysis, you find that the NPV of UQ's project is highly sensitive to the price of electricity. Therefore, you run a simulation
When conducting further analysis, you find that the NPV of UQ's project is highly sensitive to the price of electricity. Therefore, you run a simulation study. You assume that the cost of one MWh of electricity has a normal probability distribution with a mean of $73 and a standard deviation of $12. The simulation result shows that NPV has a standard deviation of $8.4 million. Compare this with your NPV calculation. Explain how you interpret these numbers in terms of the risk of the project and give your final recommendation, which may include non-financial factors.
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