a) Shao Industries is considering a proposed project for its capital budget. The company estimates that the projects NPV will be Sh. 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% chance that the economy will be average. Recognizing this uncertainty, she has also performed the following scenario analysis Economic Scenario Recession Below average Average Above average Boom Required Compute the following. I. Expected NPV, II. II. Standard deviation Coefficient of variation Probability 0.05 0.20 0.50 0.20 0.05 NPV (70 million) (25 million) 12 million 20 million 30 million

Essentials Of Investments
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Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
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Chapter1: Investments: Background And Issues
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a) Shao Industries is considering a proposed project for its capital budget. The company estimates
that the projects NPV will be Sh. 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% chance that the economy will be average. Recognizing this
uncertainty, she has also performed the following scenario analysis
Economic Scenario
Recession
I.
II.
III.
Below average
Average
Above average
Boom
Required
Compute the following.
Expected NPV,
Standard deviation
Coefficient of variation
Probability
0.05
0.20
0.50
0.20
0.05
NPV
(70 million)
(25 million)
12 million
20 million
30 million
Transcribed Image Text:a) Shao Industries is considering a proposed project for its capital budget. The company estimates that the projects NPV will be Sh. 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% chance that the economy will be average. Recognizing this uncertainty, she has also performed the following scenario analysis Economic Scenario Recession I. II. III. Below average Average Above average Boom Required Compute the following. Expected NPV, Standard deviation Coefficient of variation Probability 0.05 0.20 0.50 0.20 0.05 NPV (70 million) (25 million) 12 million 20 million 30 million
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