Question

Mountain Ski Corp. was set up to take large risks and is willing to take the greatest risk possible. Lakeway Train Co. is more typical of the average corporation and is risk-averse.

Projects	Returns: Expected Value			Standard Deviation
A	$	267,000		$	207,000
B		732,000			406,000
C		129,000			116,000
D		164,000			258,000

a-1. Compute the coefficients of variation. (Round your answers to 3decimal places.)

a-2. Which of the following four projects should Mountain Ski Corp. choose?

• Project A

• Project B

• Project D

• Project C

b. Which one of the four projects should Lakeway Train Co. choose based on the same criteria of using the coefficient of variation?

• Project C

• Project B

• Project D

• Project A

Answer 1

A-1:

Coefficcient of Variation = SD / Expected Ret

Project	SD	Expected Ret	Coefficient of Variation
A	$ 2,07,000.00	$ 2,67,000.00	0.78
B	$ 4,06,000.00	$ 7,32,000.00	0.55
C	$ 1,16,000.00	$ 1,29,000.00	0.90
D	$ 2,58,000.00	$ 1,64,000.00	1.57

A-2:

Project C is selected as it has lesser SD.

B-1 :

Project B is selected as it has lesser Coefficient of Variation