In an Effort to Update Its Pro Forma Budget, Morningside

question 10

Multiple Choice

In an effort to update its pro forma budget, Morningside Deliveries is attempting to determine the level of service, and therefore income, which will come from a new four-year contract. Morningside assigns a probability of 25% that the customer will require minimum service and provide a NPV of $28,000. The company estimates a 50% probability that medium service will be required and will generate at NPV of $32,000. There is only a likelihood of 25% that the customer will need maximum servicing and produce an NPV of $36,000. What is the standard deviation of the income from the contract?

• A) $1,280
• B) $4,040
• C) $5,657
• D) $6,428
• E) $3,200

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