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# Expected NPV and standard deviation of NPV with real example

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The managers of Merton Medical Clinic are analyzing a proposed project. The project's most likely Net Present Value (NPV) is \$120,000, but, as evidenced by the following NPV distribution, there is considerable risk involved:

Probability NPV
0.05 \$-700,000
0.2 \$-250,000
0.5 \$120,000
0.2 \$200,000
0.05 \$300,000

a. What are the project's expected NPV and standard deviation of NPV?
b. Should the base case analysis use the most likely NPV or expected NPV? Explain your answer.

##### Solution Summary

The solution guides you to calculate the expected NPV and standard deviation of NPV. Then more details on expected NPV are analyzed in details.

##### Solution Preview

Expected NPV = - 0.05 *\$700,000 - 0.2 *\$250,000 + 0.5 *\$120,000+ 0.2* \$200,000+0.05 *\$300,000 ...

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