Question
WW Inc. is considering a one-year project in France. WW Inc has performed some sensitivity analysis and the analysis indicates the euro revenue would be
WW Inc. is considering a one-year project in France. WW Inc has performed some sensitivity analysis and the analysis indicates the euro revenue would be guaranteed. The exchange rate with the dollar and euro exhibits a normal distribution. The expected percentage change of the euro is appreciation of the euro between 0 and 10 percent; with 5 percent being the expected value. WW Inc performs sensitivity analysis considering 0 percent change in the exchange rate, a 5 percent appreciation of the euro and a 10 percent appreciation of the euro. The NPV for the project is positive for both the 5 percent and 10 percent cases. For the zero percent case the NPV was slightly negative. The mean NPV of the three scenarios was positive. The CFO decides to reject the project stating that a project that had a 33 percent chance of having a negative NPV should not be considered. Do you agree? Briefly explain.
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