The managers of Merton Medical Clinic are analyzing a proposed project. The project's most likely Net Present Value (NPV) is $120,000, but, as evidenced by the following NPV distribution, there is considerable risk involved:
Probability NPV
0.05 $-700,000
0.2 $-250,000
0.5 $120,000
0.2 $200,000
0.05 $300,000
Can you help me answer the following?
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 expected NPV? Explain your answer.