Calculating Expected NPV, variance and variation coefficient
Company A is considering a proposed project whose estimated NPV is 12 million. The estimate assumes that economic conditions will be "average". However the CFO realizes that conditions could be better or worse, so a scenario analysis was performed and the following results were obtained;
Economic Scenario Prob. of Outcome NPV
Recession .05 (70 million)
Below Average .20 (25 million)
Average .50 12 million
Above average .20 20 million
Boom .05 30 million
Calculate the projects expected NPV, standard deviation, and coefficient of variation. Please show calculations.
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Solution:
Economic Probability of NPV Mean
Scenario outcome P X P*X X-Mean ...
Solution Summary
Solution describes the steps in calculating expected NPV, variation, standard deviation and coefficient of variation.
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