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

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Finance

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

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4.1 Ratings (564 Votes)

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

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