HomeworkLib
Question

A project's base case or most likely NPV is $50,000, and assume its probability of occurrence is 60%. Assume the best ca...

A project's base case or most likely NPV is $50,000, and assume its probability of occurrence is 60%. Assume the best case scenario NPV is 60% higher than the base case and assume the worst scenario NPV is 30% lower than the base case. Both the best case scenario and the worst case scenario have a 20% probability of occurrence. Find the project's coefficient of variation. Enter your answer rounded to two decimal places. For example, if your answer is 12.345 then enter as 12.35 in the answer box.

business   finance   
0 0
Add a comment Improve this question Transcribed image text
Next > < Previous
Sort answers by oldest

Homework Answers

Answer #1

Expected NPV=Sum(probability*NPV)=50000*60%+50000*1.6*20%+50000*0.7*20%=53000.00

Standard deviation of NPV=sqrt(Sum(probability*(NPV-Expected NPV)^2))=sqrt(60%*(50000-53000)^2+20%*(50000*1.6-53000)^2+20%*(50000*0.7-53000)^2)=14696.93846

Coefficient of variation=Standard deviation/Expected NPV=14696.93846/53000=0.27730

0 0
Add a comment
Know the answer?
Add Answer to:
A project's base case or most likely NPV is $50,000, and assume its probability of occurrence is 60%. Assume the best ca...
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Log In

Sign Up

Not the answer you're looking for? Ask your own homework help question. Our experts will answer your question WITHIN MINUTES for Free.
Similar Homework Help Questions

  • A project's base case or most likely NPV is $50,000, and assume its probability of occurrence...

    A project's base case or most likely NPV is $50,000, and assume its probability of occurrence is 60%. Assume the best case scenario NPV is 60% higher than the base case and assume the worst scenario NPV is 30% lower than the base case. Both the best case scenario and the worst case scenario have a 20% probability of occurrence. Find the project's coefficient of variation.   Enter your answer rounded to two decimal places. For example, if your answer is...

  • A project's base case or most likely NPV is $50,000, and assume its probability of occurrence is 60%. Assume the best ca...

    A project's base case or most likely NPV is $50,000, and assume its probability of occurrence is 60%. Assume the best case scenario NPV is 60% higher than the base case and assume the worst scenario NPV is 30% lower than the base case. Both the best case scenario and the worst case scenario have a 20% probability of occurrence. Find the project's coefficient of variation.

  • 15. Florida Enterprises, Inc. is considering a new project whose data are shown below. The equipment that will be us...

    15. Florida Enterprises, Inc. is considering a new project whose data are shown below. The equipment that will be used has a 3-year class life and will be depreciated by the MACRS depreciation system. Revenues and Cash operating costs are expected to be constant over the project's 10-year life. What is the Year 1 after-tax net operating cash flow? Enter your answer rounded to two decimal places. Do not enter $ or comma in the answer box. For example, if...

  • Question 10 10 pts Roenfeld Corp uses scenario analysis in order to determine an expected NPV...

    Question 10 10 pts Roenfeld Corp uses scenario analysis in order to determine an expected NPV for its projects. The base case, best case, and worse case scenarios as well as their probabilities of occurrence are provided below for a new project. What is the project's coefficient of variation (CV) of NPV and what is the (cumulative) probability of a negative NPV for the project? Probability of Occurrence 0.20 Scenario Best case Base case Worst case Project's NPV $28,000 $13,000...

  • The most likely outcomes for a particular project are estimated as follows: Unit price: $ 60...

    The most likely outcomes for a particular project are estimated as follows: Unit price: $ 60 Variable cost: $ 40 Fixed cost: $ 250,000 Expected sales: 30,000 units per year However, you recognize that some of these estimates are subject to error. Suppose that each variable may turn out to be either 10% higher or 10% lower than the initial estimate. The project will last for 10 years and requires an initial investment of $1.2 million, which will be depreciated...

  • The most likely outcomes for a particular project are estimated as follows: Unit price: Variable cost:...

    The most likely outcomes for a particular project are estimated as follows: Unit price: Variable cost: Fixed cost: Expected sales: $ 60 $ 40 $420,000 47,000 units per year However, you recognize that some of these estimates are subject to error. Suppose that each variable may turn out to be either 10% higher or 10% lower than the initial estimate. The project will last for 10 years and requires an initial investment of $2.1 million, which will be depreciated straight-line...

  • The most likely outcomes for a particular project are estimated as follows: Unit price: Variable cost:...

    The most likely outcomes for a particular project are estimated as follows: Unit price: Variable cost: Fixed cost: Expected sales: $ 80 $ 60 $460,000 40,000 units per year However, you recognize that some of these estimates are subject to error. Suppose that each variable may turn out to be either 5% higher or 5% lower than the initial estimate. The project will last for 10 years and requires an initial investment of $1.2 million, which will be depreciated straight-line...

  • The most likely outcomes for a particular project are estimated as follows: Unit price: $ 80...

    The most likely outcomes for a particular project are estimated as follows: Unit price: $ 80 Variable cost: $ 60 Fixed cost: $ 380,000 Expected sales: 37,000 units per year However, you recognize that some of these estimates are subject to error. Suppose that each variable may turn out to be either 5% higher or 5% lower than the initial estimate. The project will last for 10 years and requires an initial investment of $1.7 million, which will be depreciated...

  • URGENTTT The most likely outcomes for a particular project are estimated as follows: Unit price: Variable...

    URGENTTT The most likely outcomes for a particular project are estimated as follows: Unit price: Variable cost: Fixed cost: Expected sales: 80 68 $280,eee 30,eee units per year However, you recognize that some of these estimates are subject to error. Suppose that each variable may turn out to be either 5% higher or 5% lower than the initial estimate. The project will last for 10 years and requires an initial investment of $1.0 million, which will be depreciated straight-line over...

  • Shao Industries is considering a proposed project for its capital budget. The company estimates the project's NPV is $12...

    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 -$80 million     Below average 0.20 -24 million    ...

ADVERTISEMENT
Free Homework Help App
Download From Google Play
Scan Your Homework
to Get Instant Free Answers
Need Online Homework Help?
Ask a Question
Get Answers For Free
Most questions answered within 3 hours.
ADVERTISEMENT
ADVERTISEMENT