Suppose the CFO wants you to do a scenario analysis with different values for th

Question

Suppose the CFO wants you to do a scenario analysis with different values for the cost savings, the machine's salvage value, and the net operating working capital (NOWC) requirement. She asks you to use the following probabilities and values in the scenario analysis: Scenario Probability Cost Savings Salvage Value NOWC

Worst case 0.35 $72,000 $22,000 $28,000

Base case 0.35 $90,000 $27,000 $23,000
Best case 0.30 $108,000 $32,000 $18,000

Calculate the project's expected NPV, its standard deviation, and its coefficient of variation. Round your answers to two decimal places. E(NPV) = $ NPV = $ CV = Would you recommend that the project be accepted?

Explanation / Answer

Scenerio Probability(P) Cost saving(A) Salvage value(B) NOWC© D=(A+B-C) D*P Worst case 0.35 72000 22000 28000 66000 23100 Base case 0.35 90000 27000 23000 94000 32900 Best case 0.3 108000 32000 18000 122000 36600 Expected return 92600 Assuming the initial cash flow is 60,000, the net present value is $32,600.

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