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.
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.
Intermediate Financial Management (MindTap Course List)
13th Edition
ISBN:9781337395083
Author:Eugene F. Brigham, Phillip R. Daves
Publisher:Eugene F. Brigham, Phillip R. Daves
Chapter13: Capital Budgeting: Estimating Cash Flows And Analyzing Risk
Section: Chapter Questions
Problem 11P: Scenario Analysis Shao Industries is considering a proposed project for its capital budget. The...
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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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