Discuss the following:
Q1. Al Bundy is evaluating a new advertising program that could increase shoe sales. Possible outcomes and probabilities of the outcomes are shown below. Compute the coefficient of variation.
*Possible Outcomes *Additional Sales in Units *Probabilities
Ineffective campaign 40 .20
Normal response 60 .50
Extremely effective 140 .30
Q2. In doing a five-year analysis of future dividends, Newell Labs, Inc., is considering the following two plans. The values represent dividends per share.
Year Plan A Plan B
1 $2.50 $ .80
2 2.55 3.30
3 2.50 .35
4 2.65 2.80
5 2.65 6.60
a. How much in total dividends per share will be paid under each plan over the five years?
b. Ms. Carter, the vice-president of finance, suggests that stockholders often prefer a stable dividend policy to a highly variable one. She will assume that stockholders apply a lower discount rate to dividends that are stable. The discount rate to be used for Plan A is 10 percent; the discount rate for Plan B is 12 percent. Which plan will provide the higher present value for the future dividends?