There are three scenarios for a project. The Best Case scenario has an NPV of $2
ID: 2756572 • Letter: T
Question
There are three scenarios for a project. The Best Case scenario has an NPV of $20,000 and probability of 30%. The Base Case scenario has an NPV of $1,000 and probability of 45%. The Worst Case scenario has an NPV of ($5,000) and a probability of 25%.
a. What is the expected NPV of the project?
b. What is the variance of the project?
c. What is the standard deviation of the project?
d. What is the Coefficient of Variation of the project?
Please show your work so that it is easy for me to understand the problem.
Thank you.
Explanation / Answer
Expected NPV of a Project= 20000*30%+1000*45%+5000*25% 6000+450+1250 $7,700 Calculation of Standard Deviation Sccenarios Given NPV Expected NPV D=Given ret-Exp Ret d^2 Probability d^2*prob Best $20,000 $7,700 $12,300 151290000 30% 45387000 Base Case $1,000 $7,700 ($6,700) 44890000 45% 20200500 Worse $5,000 $7,700 ($2,700) 7290000 25% 1822500 203470000 67410000 Standard Deviation= 67410000 underroot 8210 Variance=standard deviation^2 67410000