Question: Shadow Inc. is considering a proposed project for its capital budget. The company estimates the project's NPV is $12 million. This estimate assumes that the

Shadow Inc. 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, he has also performed the following scenario analysis:

Economic Scenario Probability of Outcome NPV
Recession 0.05 -$48 million
Below average 0.20 -18 million
Average 0.50 12 million
Above average 0.20 16 million
Boom 0.05 26 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
NPV $ ______ million
CVNPV $________

Step by Step Solution

There are 3 Steps involved in it

1 Expert Approved Answer
Step: 1 Unlock blur-text-image
Question Has Been Solved by an Expert!

Get step-by-step solutions from verified subject matter experts

Step: 2 Unlock
Step: 3 Unlock

Students Have Also Explored These Related Finance Questions!