The managers of Merton Medical Clinic are analyzing a proposed project. The project’s most likely NPV is $120,000, but as evidenced by the following NPV distribution, there is considerable risk involved:
Probability 0.05 0.20 0.50 0.20 0.05 NPV ($700,000) (250,000) 120,000 200,000 300,000
a. What: are the project’s expected NPV and standard deviation of NPV?
b. Should the base case analysis use the most likely NPV or the expected NPV? Explain your answer.