M7 Assignment 2 - 2 783,000 404,000 3 85,000 125,000 4...

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Problem Liberty Corp. was set up to take large risks and is willing to take the greatest risk possible. Benson Co. is more typical of the average corporation and is risk averse. a. Which of the following four projects should Liberty Corp. choose? Compute the coefficients of variation to help you make your decision. b. Which one of the four projects should Benson Co. choose based on the same criteria of using the coefficient of variation? Project Returns: Expected Value Standard Deviation 1 628,000 935,000
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Unformatted text preview: 2 783,000 404,000 3 85,000 125,000 4 148,000 99,000 Answer: Coefficient of variation = Standard Deviation / Expected Value Project Standard Deviation Expected Value Coefficient of Variation 1 935,000 628,000 = 1.489 2 404,000 783,000 = 0.516 3 125,000 85,000 = 1.471 4 99,000 148,000 = 0.669 1. Liberty Corps should choose project 1 because it has the largest coefficient of variation. 2. Benson Co. should choose project 2 because it has the lowest coefficient of variation....
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This note was uploaded on 08/18/2011 for the course FINANCE 401 taught by Professor Smith during the Summer '11 term at Argosy University.

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