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 | -10 million |
Average | 0.50 | 12 million |
Above average | 0.20 | 18 million |
Boom | 0.05 | 36 million |
What is the project's expected NPV, its standard deviation, and its coefficient of variation? Enter your answers for the NPV and standard deviation in millions. For example, an answer of $1.2 million should be entered as 1.2, not 1,200,000. Round your answers to two decimal places.
E(NPV) | $ million |
σNPV | $ million |
CVNPV |
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