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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?

    No excel solution please.

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    Solution Preview

    The expected NPV is
    E(NPV)= ∑ 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.