Problem:
1. (a) Provide three factors that favor leasing some type of capital equipment, rather than buying it. (b) State two advantages of buying some capital goods, rather than leasing them.
2. In answering the following questions, it is given that the potential investment has the following range of possible outcomes and probabilities: 15% probability of a -20% return, 20% probability of a 10% return, 30% probability of a 20% return, 20% probability of a 40%, and 15% probability of a 70% return. (a) Calculate the weighted mean of the probability distribution; (b) Calculate the variance of the probability distribution; (c) Calculate the standard deviation of the probability distribution. (d) Calculate the coefficient of variation of the probability distribution. (e) Would another investment having a coefficient of variation of 0.25 have less risk per unit of expected return?
Summary
These two questions in finance deal with the capital goods buying as well as leasing differences and computation of probability for potential investment. While the first question deals with whether or not buying or leasing capital goods and question deals with computing the probability of potential investment.