Discuss the below:
Q1. Monarck King Size Beds, Inc., is evaluating a new promotional campaign that could increase sales. Possible outcomes and probabilities of the outcomes are shown below. Compute the coefficient of variation.
Additional
Possible Outcomes Sales in Units Probabilities
Ineffective campaign . . . . . . . . 20 .20
Normal response . . . . . . . . . . . 30 .50
Extremely effective . . . . . . . . . 70 .30
Q2. Five investment alternatives have the following returns and standard deviations of returns.
Returns- Standard
Alternative Expected Value Deviation
A. . . . . . . . . . . $ 5,000 $1,200
B. . . . . . . . . . . 4,000 600
C. . . . . . . . . . . 4,000 800
D. . . . . . . . . . . 8,000 3,200
E. . . . . . . . . . . 10,000 900
Using the coefficient of variation, rank the five alternatives from lowest risk to highest risk
Q3.If you were to choose between Alternatives B and C only, would you need to use the coefficient of variation? Why?
Q4. Waste Industries is evaluating a $70,000 project with the following cash flows.
Year Cash Flows
1 . . . . . . . . . . . . . $11,000
2 . . . . . . . . . . . . . 16,000
3 . . . . . . . . . . . . . 21,000
4 . . . . . . . . . . . . . 24,000
5 . . . . . . . . . . . . . 30,000
The coefficient of variation for the project is .847.
Based on the following table of risk-adjusted discount rates, should the project be undertaken? Select the appropriate discount rate and then compute the net present value.
Coefficient Discount
of Variation Rate
0-.25 . . . . . . . . 6%
.26-.50 . . . . . . . . 8
.51-.75 . . . . . . . . 10
.76-1.00 . . . . . . . 14
1.01-1.25 . . . . . . . 20