Activity 1Standard deviation versus coefficient of variation as measures of risk.Bluecage, Inc., a successful pre-school, is considering several expansion projects. All of thealternatives promise to produce an acceptable return. The owners are extremely risk-averse;therefore, they will choose the least risky of the alternatives. Data on four possible projects follow.Project Expected return Range Standard deviation12.0%.040.02912.5.050.03213.0.060.03512.8.045.030a. Which project is least risky, judging based on range?b. Which project has the lowest standard deviation? Explain why standard deviation is not anappropriate measure of risk for purposes of this comparison.c. Calculate the coefficient of variation for each project. Which project will Bluecage's ownerschoose? Explain why this may be the best measure of risk for comparing this set of opportunities.ABCD

Standard deviation versus coefficient of variation as measures of risk. Bluecage, Inc., a successful pre-school, is considering several expansion projects. All of the alternatives promise to produce an acceptable return. The owners are extremely risk-averse; therefore, they will choose the least risky of the alternatives. Data on four possible projects follow. Project Expected return Range Standard deviation A 12.0% .040 .029 B 12.5 .050 .032 13.0 .060 .035 D 12.8 .045 .030 a. Which project is least risky, judging based on range? b. Which project has the lowest standard deviation? Explain why standard deviation is not an appropriate measure of risk for purposes of this comparison. c. Calculate the coefficient of variation for each project. Which project will Bluecage's owners choose? Explain why this may be the best measure of risk for comparing this set of opportunities.

Standard deviation versus coefficient of variation as measures of risk. Bluecage, Inc., a successful pre-school, is considering several expansion projects. All of the alternatives promise to produce an acceptable return. The owners are extremely risk-averse; therefore, they will choose the least risky of the alternatives. Data on four possible projects follow. Project Expected return Range Standard deviation A 12.0% .040 .029 B 12.5 .050 .032 13.0 .060 .035 D 12.8 .045 .030 a. Which project is least risky, judging based on range? b. Which project has the lowest standard deviation? Explain why standard deviation is not an appropriate measure of risk for purposes of this comparison. c. Calculate the coefficient of variation for each project. Which project will Bluecage's owners choose? Explain why this may be the best measure of risk for comparing this set of opportunities.

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter11: Capital Budgeting And Risk

Section: Chapter Questions

Problem 12P

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