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Klott Company Encounters Significant Uncertainty with Its Sales Volume and Price

Question 91

Multiple Choice

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 worst 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?  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 worst 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?   A)  Expected NPV = $35,000;   \sigma <sub>NPV</sub> = 17,500; CV<sub>NPV</sub> = 2.0. B)  Expected NPV = $35,000;   \sigma <sub>NPV</sub> = 11,667; CV<sub>NPV</sub> = 0.33. C)  Expected NPV = $10,300;   \sigma <sub>NPV</sub> = 12,083; CV<sub>NPV</sub> = 1.17. D)  Expected NPV = $13,900;   \sigma <sub>NPV</sub> = 8,476; CV<sub>NPV</sub> = 0.61. E)  Expected NPV = $10,300;   \sigma <sub>NPV</sub> = 13,900; CV<sub>NPV</sub> = 1.35.


A) Expected NPV = $35,000; σ\sigma NPV = 17,500; CVNPV = 2.0.
B) Expected NPV = $35,000; σ\sigma NPV = 11,667; CVNPV = 0.33.
C) Expected NPV = $10,300; σ\sigma NPV = 12,083; CVNPV = 1.17.
D) Expected NPV = $13,900; σ\sigma NPV = 8,476; CVNPV = 0.61.
E) Expected NPV = $10,300; σ\sigma NPV = 13,900; CVNPV = 1.35.

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