Question

Shao Industries is considering a proposed project for its capital budget. The company estimates the project's NPV is $12 million. This estimate assumes that the economy and market conditions will be average over the next few years. The company's CFO, however, forecasts there is only a 50% chance that the economy will be average. Recognizing this uncertainty, she has also performed the following scenario analysis:

Economic Scenario |
Probability of Outcome |
NPV |

Recession | 0.05 | -$72 million |

Below average | 0.20 | -18 million |

Average | 0.50 | 12 million |

Above average | 0.20 | 20 million |

Boom | 0.05 | 38 million |

What are the project's expected NPV, standard deviation, and coefficient of variation? Enter your answers for the NPV and standard deviation in millions. For example, an answer of $1.24 million should be entered as 1.24, not 1,240,000. Do not round intermediate calculations. Round your answers to two decimal places.

E(NPV) | $ million |

σ_{NPV} |
$ million |

CV_{NPV} |

Answer #1

Shao Industries is considering a proposed project for its
capital budget. The company estimates the project's NPV is $12
million. This estimate assumes that the economy and market
conditions will be average over the next few years. The company's
CFO, however, forecasts there is only a 50% chance that the economy
will be average. Recognizing this uncertainty, she has also
performed the following scenario analysis:
Economic Scenario
Probability of Outcome
NPV
Recession
0.05
-$74 million
Below average
0.20
-12 million ...

Shao Industries is considering a proposed project for its
capital budget. The company estimates the project's NPV is $12
million. This estimate assumes that the economy and market
conditions will be average over the next few years. The company's
CFO, however, forecasts there is only a 50% chance that the economy
will be average. Recognizing this uncertainty, she has also
performed the following scenario analysis:
Economic Scenario
Probability of Outcome
NPV
Recession
0.05
-$76 million
Below average
0.20
-12 million ...

Shao Industries is considering a proposed project for its
capital budget. The company estimates the project's NPV is $12
million. This estimate assumes that the economy and market
conditions will be average over the next few years. The company's
CFO, however, forecasts there is only a 50% chance that the economy
will be average. Recognizing this uncertainty, she has also
performed the following scenario analysis:
Economic Scenario
Probability of Outcome
NPV
Recession
0.05
-$76 million
Below average
0.20
-28 million ...

Scenario Analysis
Shao Industries is considering a proposed project for its
capital budget. The company estimates the project's NPV is $12
million. This estimate assumes that the economy and market
conditions will be average over the next few years. The company's
CFO, however, forecasts there is only a 50% chance that the economy
will be average. Recognizing this uncertainty, she has also
performed the following scenario analysis:
Economic Scenario
Probability of Outcome
NPV
Recession
0.05
-$78 million
Below average
0.20...

Scenario Analysis
Shao Industries is considering a proposed project for its
capital budget. The company estimates the project's NPV is $12
million. This estimate assumes that the economy and market
conditions will be average over the next few years. The company's
CFO, however, forecasts there is only a 50% chance that the economy
will be average. Recognizing this uncertainty, she has also
performed the following scenario analysis:
Economic Scenario
Probability of Outcome
NPV
Recession
0.05
-$56 million
Below average
0.20...

Scenario Analysis
Shao Industries is considering a proposed project for its
capital budget. The company estimates the project's NPV is $12
million. This estimate assumes that the economy and market
conditions will be average over the next few years. The company's
CFO, however, forecasts there is only a 50% chance that the economy
will be average. Recognizing this uncertainty, she has also
performed the following scenario analysis:
Economic Scenario
Probability of Outcome
NPV
Recession
0.05
-$30 million
Below average
0.20...

Scenario Analysis
Shao Industries is considering a proposed project for its
capital budget. The company estimates the project's NPV is $12
million. This estimate assumes that the economy and market
conditions will be average over the next few years. The company's
CFO, however, forecasts there is only a 50% chance that the economy
will be average. Recognizing this uncertainty, she has also
performed the following scenario analysis:
Economic
Scenario
Probability of
Outcome
NPV
Recession
0.05
-$82
million
Below average
0.20...

Shao Industries is considering a proposed project for its
capital budget. The company estimates the project's NPV is $12
million. This estimate assumes that the economy and market
conditions will be average over the next few years. The company's
CFO, however, forecasts there is only a 50% chance that the economy
will be average. Recognizing this uncertainty, she has also
performed the following scenario analysis:
Economic
Scenario
Probability of
Outcome
NPV
Recession
0.05
-$68 million
Below average
0.20
-18 million ...

Scenario Analysis
Shao Industries is considering a proposed project for its
capital budget. The company estimates the project's NPV is $12
million. This estimate assumes that the economy and market
conditions will be average over the next few years. The company's
CFO, however, forecasts there is only a 50% chance that the economy
will be average. Recognizing this uncertainty, she has also
performed the following scenario analysis:
Economic
Scenario
Probability of
Outcome
NPV
Recession
0.05
-$42 million
Below average
0.20...

Scenario Analysis
Shao Industries is considering a proposed project for its
capital budget. The company estimates the project's NPV is $12
million. This estimate assumes that the economy and market
conditions will be average over the next few years. The company's
CFO, however, forecasts there is only a 50% chance that the economy
will be average. Recognizing this uncertainty, she has also
performed the following scenario analysis:
Economic
Scenario
Probability of
Outcome
NPV
Recession
0.05
-$40 million
Below average
0.20...

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