Klott Company encounters significant uncertainty with its sales volume and price in its primary product.The firm uses scenario analysis in order to determine an expected NPV,which it then uses in its budget.The base case,best case,and worse case scenarios and probabilities are provided in the table below.What is Klott's expected NPV,standard deviation of NPV,and coefficient of variation of NPV? Probability Of Outcome Unit Sales Volume Sales Price NPV (In Thousands) Worst case 0)30 6,000 $3,600 −$ 6,000 Base case 0)50 10,000 4,200 + 13,000 Best case 0)20 13,000 4,400 + 28,000 A) Expected NPV = $35,000;σ_NPV = 17,500;CV_NPV = 2.0. B) Expected NPV = $35,000;σ_NPV = 11,667;CV_NPV = 0.33. C) Expected NPV = $10,300;σ_NPV = 12,083;CV_NPV = 1.17. D) Expected NPV = $13,900;σ_NPV = 8,476;CV_NPV = 0.61. E) Expected NPV = $10,300;σ_NPV = 13,900;CV_NPV = 1.35.

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Quizplus · Accepted Answer

The expected NPV is calculated by multiplying each scenario's NPV by its probability and summing these products: (0.30 * -6000) + (0.50 * 13000) + (0.20 * 28000) = -1800 + 6500 + 5600 = $10,300. The standard deviation of NPV is calculated using the formula for standard deviation in a probability distribution, which involves the square root of the weighted variance. The coefficient of variation (CV) is the standard deviation divided by the expected NPV, which measures the relative risk per unit of return.

Klott Company Encounters Significant Uncertainty with Its Sales Volume and Price