Question

P8-7 Coefficient of variation Metal Manufacturing has isolated four alternatives for meeting its need for increased production capacity. The following table summarizes data gathered relative to each of these alternatives. Alternative Expected return 20% Standard deviation of return 7.0% B 22 9.5 6.0 5.5 16 a. Calculate the coefficient of variation for each alternative. b. If the firm wishes to minimize risk, which alternative do you recommend? Why?

Answer 1

Coefficient of variation = Standard deviation / Expected Return

		Coefficient of variation
A	7/20	0.35
B	9.5/22	0.43
C	6/19	0.32
D	5.5/16	0.34

Answer for “a” is above

Answer for “b” is - Alternative C would be recommended if firm wishes to minimize risk.