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.

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