Standard deviation of the probability distribution

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Paducah Products' management is attempting to assess the riskiness of a proposed new capital investment project. Using expected values for the annual net cash flows and a weighted average cost of capital of 8%, they have estimated the expected NPV of the project to be $5.5 million. Management has run a number of simulations of possible outcomes from the project and they have considered their past experience with projects of this type to determine that the standard deviation of the probability distribution of the NPV is $4 million.

a. What is the probability that this will be an acceptable investment project?

b. What is the probability that this will be an unacceptable project?

c. Would you recommend investing in this project? Why?

Reference no: EM132789422

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