Cranston Plastic Packaging Solutions has run a simulation on a large project to produce eco-friendly packaging for personal hygiene products. The mean NPV is an impressive $8,000,000, but there is a 16% probability of a negative NPV and a 5% probability of an NPV worse than ($6,000,000).
A) Cranston should reject the project. It is too risky.
B) Cranston should accept the project. The odds are in their favor.
C) Cranston should explore options to reduce the likelihood of very unfavorable outcomes.
D) Cranston should change the probabilities used in the simulation to reduce the likelihood of a negative NPV.

Question

Quizplus · Accepted Answer

While the mean NPV is impressive, the probabilities of negative outcomes are concerning. Instead of rejecting the project or changing the probabilities used in the simulation, Cranston should explore options to reduce the likelihood of very unfavorable outcomes. This could include adjusting the project scope or budget, identifying and managing risks, or implementing contingency plans. By taking proactive steps to address potential issues, Cranston can increase the chances of a successful outcome.

Cranston Plastic Packaging Solutions Has Run a Simulation on a Large