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Calculation of variance and standard deviation of the expected value.

A company is considering between two projects: project 1 and project 2. The estimated cash flows and their probabilities of the two projects are given below.

Project 1

Project 2

Cash inflow

Probability

Cash inflow

Probability

$3,000

0.10

$2,000

0.10

4,000

0.20

3,500

0.25

5,000

0.40

5,000

0.30

6,000

0.20

6,500

0.25

7,000

0.10

8,000

0.10

  1. Compute the expected value (revenue) from each project.
  2. Compute the variance and standard deviation of the expected value from each project.
  3. Compute the coefficient of variation of each project, and determine which project should the company choose.

Business Economics, Economics

  • Category:- Business Economics
  • Reference No.:- M916131

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