Richardson Supplies 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 a negative NPV and an NPV worse than $6,000,000 are both concerning. Therefore, it would be wise for Cranston to explore options to reduce the likelihood of these unfavorable outcomes, such as adjusting the project plan or seeking additional funding. Simply accepting or rejecting the project based on the given probabilities would not be the best course of action.

Richardson Supplies Has Run a Simulation on a Large Project