A project's base case or most likely NPV is $44,000, and assume its probability of occurrence...

A project's base case or most likely NPV is $44,000, and assume its probability of occurrence is 50%. Assume the best case scenario NPV is 65% higher than the base case and assume the worst scenario NPV is 35% lower than the base case. Both the best case scenario and the worst case scenario have a 25% probability of occurrence. Find the project's coefficient of variation. Enter your answer rounded to two decimal places. For example, if your answer is 123.45% or 1.2345 then enter as 1.23 in the answer box.

Expert Solution

Base case NPV =	44000	Probability	50%

Best case NPV is 65% higher than base case.
So Best case NPV = 44000+ 44000*65%	72600	Probability	25%

Worst case NPV is 35% lower than base case
So, Worst case NPV = 44000-(44000*35%)	28600	Probability	25%

Average Return formula in case of Probability = sum of (Probability* NPV)
Standard deviation = √((∑ (actual NPV -Average NPV)^2*Probability)
Coefficient of variation = Standard deviation / Average return


	Probability	NPV	NPV *Prob.	(Actual NPV - Average NPV)^2 * probaility
Base case	50%	44000	22000	5445000
Best case	25%	72600	18150	160022500
Worst case	25%	28600	7150	87422500

Total=			47300	252890000

Average return =	47300
Standard deviation = √(252890000)
15902.51552
Coefficient of variation = 15902.51552/47300 =	0.3362054022

So, coefficient of variation is 0.34

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jeff jeffy answered 1 year ago

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