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UNDERSTANDING HEALTHCARE FINANCIAL MANAGEMENT Chapter 12 -- Project Risk Analysis Klott Health encounters significant uncertainty...

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UNDERSTANDING HEALTHCARE FINANCIAL MANAGEMENT Chapter 12 -- Project Risk Analysis Klott Health 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 worst 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? Prob Worst case Expected case Best case 0.3 0.5 0.2 1 Sales price $3,600 $4,200 $4,400 NPV ($6,000) $13,000 $28,000 $35,000 E(NPV) Var(NPV) SD(NPV) CV(NPV) Hint: Sum of products of Probability x NPV Hint: Sum of each Probability x (the difference between NPV and Expected NPV)^Squared LSquare root of Variance SD / E(NPV)

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