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Klott Company Encounters Significant Uncertainty with Its Sales Volume and Price

question 24

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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.


Definitions:

Capital Intensive Techniques

Production methods that require a higher investment in physical capital rather than labor.

Payroll Tax

Impositions required from employers or employees, consistently based on a proportion of the payment to laborers.

Net Profits

The amount of money remaining after all operating expenses, taxes, and dividends have been deducted from total revenue.

Goods and Services

These are the products and activities that are available for purchase by consumers, including tangible items and intangible services.

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