Your company faces three possible economic scenarios. Under each scenario, a NPV is estimated with a...

Your company faces three possible economic scenarios. Under each scenario, a NPV is estimated with a probability of occurrence, as indicated in the table below.

Case	Probabilty	NPV
Worst	0.25	($27.8)
Base	0.50	15.0
Best	0.25	57.8

What is the expected NPV? Formula: E(NPV)∑ (Pi * NPVi) (3 points)
What is the standard deviation of NPV?

Expert Solution

ans 1
	Case	Probability	NPV	Probability *NPV
	Worst	0.25	(27.80)	(6.95)
	Base	0.50	15.00	7.50
	Best	0.25	57.80	14.45
	Total			15.00

	therefore expected NPV =			15.00



ans 3	computation of SD
	Case	Probability	NPV		probability*(NPV-15)^2
	Worst	0.25	(27.80)		457.96
	Base	0.50	15.00		-
	Best	0.25	57.80		457.96
	Total				915.92

	Variance =	915.92
	SD = 915.92^0.5	30.26
	Therefore Standard deviation of NPV=	30.26

jeff jeffy answered 2 years ago

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