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1 Consider the following probability distribution of returns estimated for a proposed project that involves a new ultrasound machine:

• 10.1 Consider the following probability distribution of returns estimated for
• a proposed project that involves a new ultrasound machine:
• State of the Economy Occurrence Rate of Return
• Very poor 0.10 −10.0%
• Poor 0.20 0.0
• Average 0.40 10.0
• Good 0.20 20.0
• Very good 0.10 30.0
• a. What is the expected rate of return on the project?
• b. What is the project’s standard deviation of returns?[335], (35)
• c. What is the project’s coefficient of variation (CV) of returns?
• d. What type of risk does the standard deviation and CV measure?
• e. In what situation is this risk relevant?

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Accounting-8210903.xls

Ques: Solution:
a.) • 10.1 Consider the following probability distribution of returns estimated for
• a proposed project that involves a new ultrasound machine:
• State of the Economy...

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