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# the coefficient of variation

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Huang Industries is considering a proposed project for its capital budget. The company estimates that 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 that there is only a 50 percent chance that the economy will be average. Recognizing this uncertainty, she has performed the following scenario analysis:

Economic Probability
Scenario of Outcome NPV

Recession 0.05 (\$70 million)

Below Average 0.20 (\$25 million)

Average 0.50 \$12 million

Above Average 0.20 \$20 million

Boom 0.05 \$30 million

What is the project's expected NPV, its standard deviation, and its coefficient of variation?

https://brainmass.com/economics/uncertainty/the-coefficient-of-variation-156316

#### Solution Preview

The expected NPV is
E(NPV)= &#8721; Prob*NPV
= 0.05*(-70) + 0.20*(-25) + 0.50*12 + 0.20*20 + 0.05*30 ...

#### Solution Summary

This job attains the coefficient of variation.

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