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 Recession Below average Average Above average Boom Probability of Outcome NPV 0.05 -$32 million 0.20 -18 million 0.50 12 million 0.20 24 million 0.05 28 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 ONPV: $ million CVNPV:
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 Recession Below average Average Above average Boom Probability of Outcome NPV 0.05 -$32 million 0.20 -18 million 0.50 12 million 0.20 24 million 0.05 28 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 ONPV: $ million CVNPV:
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
Related questions
Question
None
Transcribed Image Text: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
Recession
Below average
Average
Above average
Boom
Probability of Outcome
NPV
0.05
-$32 million
0.20
-18 million
0.50
12 million
0.20
24 million
0.05
28 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
ONPV:
$
million
CVNPV:
Expert Solution
This question has been solved!
Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.
Step by step
Solved in 2 steps
Recommended textbooks for you
Essentials Of Investments
Finance
ISBN:
9781260013924
Author:
Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:
Mcgraw-hill Education,
Essentials Of Investments
Finance
ISBN:
9781260013924
Author:
Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:
Mcgraw-hill Education,
Foundations Of Finance
Finance
ISBN:
9780134897264
Author:
KEOWN, Arthur J., Martin, John D., PETTY, J. William
Publisher:
Pearson,
Fundamentals of Financial Management (MindTap Cou…
Finance
ISBN:
9781337395250
Author:
Eugene F. Brigham, Joel F. Houston
Publisher:
Cengage Learning
Corporate Finance (The Mcgraw-hill/Irwin Series i…
Finance
ISBN:
9780077861759
Author:
Stephen A. Ross Franco Modigliani Professor of Financial Economics Professor, Randolph W Westerfield Robert R. Dockson Deans Chair in Bus. Admin., Jeffrey Jaffe, Bradford D Jordan Professor
Publisher:
McGraw-Hill Education