Klott Company Encounters Significant Uncertainty with Its Sales Volume and Price

question 70

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 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.

---

Definitions:

Vision

The ability to perceive surroundings by processing light and recognizing shapes, colors, and depth through the eyes; a crucial aspect of human and animal senses.

Social Referencing

A process of using others’ facial expressions as a cue about the situation.

Mother

A female parent or guardian who may provide care, nurturing, and support to her offspring.

Understanding Of Number

The cognitive ability to recognize, value, and manipulate numerical quantities, fundamental to mathematics.