Klott Company Encounters Significant Uncertainty with Its Sales Volume and Price

question 74

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?

• 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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Definitions:

Attract Capital

The act of drawing investment funds or resources towards a business, project, or idea, typically through the promise of profit or other financial gains.

Corporation

A legal entity that is separate and distinct from its owners, providing limited liability protection to its shareholders.

Investors

Individuals or entities that allocate capital with the expectation of receiving financial returns.

Dissolves

To formally end or terminate something, such as a contractual agreement or a business entity like a corporation.