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 Unit Sales Sales NPV
of Outcome Volume Price (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; σNPV = 17,500; CVNPV = 2.00.
b. Expected NPV = $35,000; σNPV = 11,667; CVNPV = 0.33.
c. Expected NPV = $10,300; σNPV = 12,083; CVNPV = 1.17.
d. Expected NPV = $13,900; σNPV = 8,476; CVNPV = 0.61.
e. Expected NPV = $10,300; σNPV = 13,900; CVNPV = 1.35.