SCENARIO ANALYSIS Huang Industries is considering a proposed project whose estimated NPV is $12 million. This estimate assumes that economic conditions will be “average.” However, the CFO realizes that conditions could be better or worse, so she performed a scenario analysis and obtained these results: Economic Scenario Probability of Outcome NPV Recession 0.05 ($70 million) Below average 0.20 (25 million) Average 0.50 12 million Above average 0.20 20 million Boom 0.05 30 million Calculate the project's expected NPV, standard deviation, and coefficient of variation.
Fundamentals of Financial Manageme...
Fundamentals of Financial Manageme...
Solutions
SCENARIO ANALYSIS Huang Industries is considering a proposed project whose estimated NPV is $12 million. This estimate assumes that economic conditions will be “average.” However, the CFO realizes that conditions could be better or worse, so she performed a scenario analysis and obtained these results:
| Economic Scenario | Probability of Outcome | NPV |
| Recession | 0.05 | ($70 million) |
| Below average | 0.20 | (25 million) |
| Average | 0.50 | 12 million |
| Above average | 0.20 | 20 million |
| Boom | 0.05 | 30 million |
Calculate the project's expected NPV, standard deviation, and coefficient of variation.
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