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The managers of Merton Medical Clinic are analyzing a proposed project. The project's most likely NPV is
$120,000, but as evidenced by the following NPV distribution, there is considerable risk involved.
Probability NPV Continue to post
0.05 ($700,000)
20 questions remaining
0.20 (250,000)
0.50 120,000
0.20 200,000
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0.05 300,000
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a. What are the project's expected NPV and standard deviation of NPV? We'll send you a one-time downloa
b. Should the base case analysis use the most likely NPV or the expected NPV? Explain your answer. link

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a. Expected NPV = (-700000 x 0.05) + (-250000 x 0.20) + (120000 x 0.50) + (200000 x 0.20) + (300000 x
0.05)
My Textbook Solutions
= $30000

Standard deviation of NPV

Probability NPV (X) PX x = X - Expected NPV Px2

0.05 -700000 -35000 -730000 26645000000 Introductor... Introductor... Introductor

0.20 -250000 -50000 -280000 15680000000 4th Edition 4th Edition 5th Edition

View all solutions

0.50 120000 60000 90000 4050000000

0.20 200000 40000 170000 5780000000

0.05 300000 15000 270000 3645000000

30000 55800000000

Standard deviation = Sqrt of 55800000000 = $236220.24

b. The expected NPV should be used for base case analysis, since expected NPV is more mathematically
and logically reliable estimate of NPV.

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Q: The managers of Merton Medical Clinic are analyzing a proposed project. The project's most likely NPV is $120,000,
but, as evidenced by the following NPV distribution, there is considerable risk involved: Probability NPV 0.05
-$700,000 0.2 -$250,000 0.5 $120,000 0.2 $200,000 0.05 $300,000 a. What are the project's expected NPV and
standard deviation of NPV? b. Should the base case...

A: See answer 100% (1 rating)

Q: The managers of Merton Medical Clinic are analyzing a proposed project. The project's most likely NPV is $120,000,
but, as evidenced by the following NPV distribution, there is considerable risk involved: Probability NPV 0.05

https://www.chegg.com/homework-help/questions-and-answers/managers-merton-medical-clinic-analyzing-proposed-project-project-s-likely-npv-120-0… 1/3
12/11/2020 The Managers Of Merton Medical Clinic Are Analyzin... | Chegg.com
-$700,000 0.2 -$250,000 0.5 $120,000 0.2 $200,000 0.05 $300,000 a.) What are the project's expected NPV and
standard deviation of NPV? b.) Compute the CV? c...
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