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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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Fundamentals of Financial Manageme...

15th Edition
Eugene F. Brigham + 1 other
Publisher: Cengage Learning
ISBN: 9781337395250
BuyFind

Fundamentals of Financial Manageme...

15th Edition
Eugene F. Brigham + 1 other
Publisher: Cengage Learning
ISBN: 9781337395250

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Chapter
Section
Chapter 12, Problem 7P
Textbook Problem

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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Chapter 12 Solutions

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