Calculating Expected NPV, variance and variation coefficient

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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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Economic Probability of NPV Mean
Scenario outcome P X P*X X-Mean ...

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Solution describes the steps in calculating expected NPV, variation, standard deviation and coefficient of variation.

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Lokesh Jain, MSc

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