Kyle’s Shoe Stores Inc. is considering opening an additional
suburban outlet. An aftertax expected cash flow of $100 per week is
anticipated from two stores that are being evaluated. Both stores
have positive net present values.
Site A | Site B | ||||||||||||||
Probability | Cash Flows | Probability | Cash Flows | ||||||||||||
0.2 | 50 | 0.1 | 20 | ||||||||||||
0.2 | 100 | 0.2 | 50 | ||||||||||||
0.2 | 110 | 0.2 | 100 | ||||||||||||
0.4 | 120 | 0.2 | 150 | ||||||||||||
0.3 | 190 | ||||||||||||||
a. Compute the coefficient of variation for
each site. (Do not round intermediate calculations.
Round your answers to 3 decimal places.)
b. Which store site would you select based on
the distribution of these cash flows? Use the coefficient of
variation as your measure of risk.
multiple choice
Site A Correct
Site B
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