Problem: Bridget’s Modeling Studios is considering opening in a new location in Miami.
An aftertax cash flow of $120 per day (expected value) is projected for each of the two locations being evaluated.
Which of these sites would you select based on the distribution of these cash flows (use the coefficient of variation as your measure of risk)?
Site A Site B
Probability Cash Flows Probability Cash Flows
.15 $ 80 .10 $ 50
.50 110 .20 80
.30 140 .40 120
.05 220 .20 160
.10 190
Expected value $120 Expected value $120