Huang Industries is considering a proposed project whose estimated NPV is $12 mi

Question

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:

Calculate the project's expected NPV, standard deviation, and coefficient of variation. Round your answers to two decimal places. Enter your answers for the project's expected NPV and standard deviation in millions.

Economic Scenario Probability of Outcome NPV Recession 0.05 - $82 million Below average 0.20 - $26 million Average 0.50 12 million Above average 0.20 14 million Boom 0.05 32 million

Explanation / Answer

Economic Scenario Probability of Outcome (P) NPV P*NPV (NPV-NPVmean)^2 * P Recession 0.05 $         (82,000,000) $ (4,100,000) 345280500000000 Below average 0.2 $         (26,000,000) $ (5,200,000) 146882000000000 Average 0.5 $          12,000,000 $   6,000,000 59405000000000 Above average 0.2 $          14,000,000 $   2,800,000 33282000000000 Boom 0.05 $          32,000,000 $   1,600,000 47740500000000 SUM 1 1100000 632590000000000 E(NPV) $       1.1 million SUM of P*NPV Standard deviation $     25.151341 million SQRT(SUM of (NPV-NPVmean)^2 * P) CV 22.86485628 std dev/ E(NPV)

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