Question

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a. Given the following information, calculate the expected value for Firm C's EPS. Data for Firms A and B are as follows: E(EPSA) = $5.10, and 0A = $3.63; E(EPSB) = $4.20, and ob = $2.98. Do not round intermediate calculations. Round your answer to the nearest cent. Firm A: EPSA Firm B: EPSB Firm C: EPSC Probability 0.1 0.2 0.4 0.2 0.1 ($1.64) $1.80 $5.10 $8.40 $11.84 (1.20) 1.38 4.20 7.02 9.60 (2.53) 1.35 5.10 8.85 12.73 E(EPSC): $ b. You are given that oc = $4.12. Discuss the relative riskiness of the three firms' earnings using their respective coefficients of variation. Do not round intermediate calculations. Round your answers to two decimal places. CV The most risky firm i -Select- Firm A Firm B Firm C

Answer 1

Please refer to below spreadsheet for calculation and answer. Cell reference also provided.

B C D E 2 a. Probability 0.1 0.2 0.4 0.2 0.1 Firm C: EPSC -$2.53 $1.35 $5.10 $8.85 $12.73 Expected EPS of Firm C E(EPS) $5.10 11 12 13 b. Firm 14 A E(EPS) $5.10 $4.20 $5.10 0 $3.63 $2.98 $4.12 су 0.71 0.71 0.81 15 16 17 18 The most risky firm is Firm C 19 201

Cell reference -

A в 1 2 a. Probability Firm C: EPSC 0.1 0.2 0.4 0.2 0.1 -2.53 1.35 5.1 0.4 8.85 12.73 Expected EPS of Firm C E(EPS) =SUMPRODUCT(B3:B7,03:07) 11 13 b. Firm E(EPS) A в C 15 16 5.1 4.2 = C10 CV =D14/C14 =D15/C15 =D16/016 3.63 2.98 .12 4 17 18 The most risky firm is Firm C 19 20

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