Your company tries to decide whether to carry out a marketing strategy for a project. The marketing strategy costs $20 million today. Under this marketing strategy, the company will start investing the project one year later. However, the marketing strategy does not guarantee a profit with 100% certainty. Instead, it shows three possible economic scenarios. Under each scenario, a NPV at year 1 is estimated with a probability of occurrence, as indicated in the table below.

What is the expected NPV at year 1? Formula: E(NPV) = ?(Pi *NPV _i )

What is the NPV at year 0, when discount rate is 10%?

Please decide whether your company should carry out the marketing strategy.

Based on the information provided in the table above, please calculate the expected NPV, and the standard deviation of the NPVs. Use "Scatter Chart with Smooth lines" of Excel to display the Probabilities and the NPVs for each case. In this chart, you should have 3columns for 3 cases. The horizontal axis stands for NPV and the vertical axis stands for probability.

Transcribed Image Text:

Case Worst Base Best Probability 0.25 0.50 0.25 NPV ($27.8) 15.0 57.8 Case Worst Base Best Probability 0.25 0.50 0.25 NPV ($27.8) 15.0 57.8

Answer rating: 100% (QA)

Expected NPV Probability Respective NPV Expected NPV 025 278 050 ... View the full answer