Please answer completely and correctly all questions thanks Zhl is a risk analys

Question

Please answer completely and correctly all questions thanks

Zhl is a risk analyst. She is conducting a sensitivity analysis to evaluate the riskiness of a new project that her company is considering investing in. Her risk analysis report includes the serisitivity curve shown on the graph NPV [Millions of dollars Base Case Base Case Units Soltd 20 15 -10 505 10 15 20 CHANGE IN UNITS SOLD IPercent This curve implies that the project is very sensitive to changes in units sold. The project's NPV is likely to become negative if the number of units sold decreases by Along with the sensitivity analysis, Zhi is including a scenario analysis for the project in her report, giving the probability of the project generating a negative NPV. Her report includes the following information about the scenario analysis: Data Collected Probability Data for z Probability 0.03 0.06 0.09 Outcome NPV (Pi) Pessimistic $5.62 million0.35 Mast likely $7.94 miltion0.30 Optimistic $16.45 million 0.35 0.4 0.3336 0.3228 0.3121 0.6 0.2643 0.2546 0.2451 0.8 0.2033 0.1949 0.1867 10 0.1515 0.1446 0.1379 Complete the missing information in Zhi's report: The expected net present value of the project is Standard deviation of the net present value (the NPV of the project is likely to vary b y) million

Explanation / Answer

-Looking at graph it is clear that if the decreasein unit sold is above 10%, the projects NPV will became negative.

The expected net present value for project is

=(-5.62)*(0.35)+(7.94)*(0.30)+(16.45)*(0.35) =$ 6.17 million

the standard deviation of net present value

=(E(X^2)-(E(X))^2)^1/2

E(x^2)=((-5.62)^2)*(0.35))+((7.94)^2)*(0.30))+((16.45)^2)*(0.35))=124.67

E(X)=(-5.62)*(0.35)+(7.94)*(0.30)+(16.45)*(0.35) =$ 6.17

Standard deviation=((124.67)-(6.17)^2)^1/2= 9.30

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