Log out Go to App
Go to App

Learning Materials

Features

Discover

Chapter 4: Q1BP (page 438)

Assume you are risk-averse and have the following three choices. Which project will you select? Compute the coefficient of variation for each.

Expected Value Standard Deviation

A \(2,200 \)1,400

B 2,730 1,960

C 2,250 1,490

Short Answer

Expert verified

The coefficient of variation for Part A is computed as 0.655, Part B is computed as 0.718 and part C is computed as 0.662.Project A should be selected.

Step by step solution

01

Computation of coefficient of Part A

Coefficientofvariation=StandardDeviationExpectedvalue=1,4402,200=0.655

02

Computation of coefficient of Part B

Coefficientofvariation=StandardDeviationExpectedvalue=1,9602,730=0.718

03

Computation of coefficient of Part C

Coefficientofvariation=StandardDeviationExpectedvalue=1,4902,250=0.662

04

Selection of project

The project A should be chosen as it has the lowest coefficient of variation, less coefficient of variation means the project has relatively less risk than the other projects.

Unlock Step-by-Step Solutions & Ace Your Exams!

  • Full Textbook Solutions

    Get detailed explanations and key concepts

  • Unlimited Al creation

    Al flashcards, explanations, exams and more...

  • Ads-free access

    To over 500 millions flashcards

  • Money-back guarantee

    We refund you if you fail your exam.

Start your free trial

Over 30 million students worldwide already upgrade their learning with Vaia!

One App. One Place for Learning.

All the tools & learning materials you need for study success - in one app.

Get started for free

Most popular questions from this chapter

What is the present value of a. $7,900 in 10 years at 11 percent?

Question: As stated in the chapter, annuity payments are assumed to come at the end of each payment period (termed an ordinary annuity). However, an exception occurs when the annuity payments come at the beginning of each period (termed an annuity due). To find the present value of an annuity due, the annuity formula must be adjusted as to the following: PVAD 5 A 3 ( 12 1 ________ (11i) n 21 ___________ i 11) The Capital Budgeting Process blo7716x_ch09_255-294.indd 284. Likewise, the formula for the future value of an annuity due requires a modification: FVAD 5 A 3 ( (11i) n11 21 ___________ i 21). What is the future value of a 15-year annuity of $1,800 per period where payments come at the beginning of each period? The interest rate is 12 percent.

If you invest $9,000 today, how much will you have b. In 7 years at 12 percent?

Juan Garza invested $20,000 10 years ago at 12 percent, compounded quarterly. How much has he accumulated?

Question: Morgan Jennings, a geography professor, invests $50,000 in a parcel of land that is expected to increase in value by 12 percent per year for the next five years. He will take the proceeds and provide himself with a 10-year annuity. Assuming a 12 percent interest rate, how much will this annuity be?
See all solutions

Recommended explanations on Business Studies Textbooks

Nature of Business

Read Explanation

Operational Management

Read Explanation

Strategic Direction

Read Explanation

Financial Performance

Read Explanation

Influences On Business

Read Explanation

Business Case Studies

Read Explanation
View all explanations

What do you think about this solution?

We value your feedback to improve our textbook solutions.

Study anywhere. Anytime. Across all devices.

Sign-up for free