Foundations of Financial Management
16th Edition
ISBN: 9781259277160
Author: Stanley B. Block, Geoffrey A. Hirt, Bartley Danielsen
Publisher: McGraw-Hill Education
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Question
Chapter 13, Problem 12P
Summary Introduction
To determine: The store site should be chosen by Kyle’s Shoe Store Inc. on the basis of their CoVs.
Introduction:
Coefficient of variation:
It is the ratio of SD (standard deviation) to the mean that shows the extent of variability in the data in relation to the mean of the population.
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Students have asked these similar questions
Karamo's Shoe Stores Incorporated 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.
Probability
0.2
0.4
0.2
0.1
Site A
Site A
Site B
Cash FlowS
Coefficient of
Variation
$ 50
100
0.106
110
150
Probability
0.1
0.2
0.4
0.2
0.1
a. Compute the coefficient of variation for each site.
Note: Do not round intermediate calculations. Round your answers to 3 decimal places.
Site B
Cash Flows
$20
50
100
150
180
Karamo's Shoe Stores Incorporated is considering opening an additional suburban outlet. An aftertax expected cash flow of $160 per
week is anticipated from two stores that are being evaluated. Both stores have positive net present values.
Probability
0.2
0.2
0.3
0.3
Site A
Site B
Site A
Cash
Site A
O Site B
FlowS
$ 70
160
170
210
Probability
0.1
0.2
0.2
0.4
0.1
a. Compute the coefficient of variation for each site.
Note: Do not round intermediate calculations. Round your answers to 3 decimal places.
Site B
Coefficient of
Variation
Cash FlowS
$ 50
80
160
210
230
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.
Kyle's Shoe Stores Inc. is considering opening an additional suburban outlet. An aftertax expected cash flow of $130 per week is
anticipated from two stores that are being evaluated. Both stores have positive net present values.
Site A
Probability Cash Flows
0.2
0.1
Site A
Site B
130
190
Coefficient of
Variation
Site A
O Site B
Site B
Probability Cash Flows
0.1
a. Compute the coefficient of variation for each site. (Do not round intermediate calculations. Round your answers to 3 decimal
places.)
0.3
0.2
0.2
130
160
190
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.
SACH********
Chapter 13 Solutions
Foundations of Financial Management
Ch. 13 - Prob. 1DQCh. 13 - Discuss the concept of risk and how it might be...Ch. 13 - When is the coefficient of variation a better...Ch. 13 - Explain how the concept of risk can be...Ch. 13 - If risk is to be analyzed in a qualitative way,...Ch. 13 - Assume a company, correlated with the economy, is...Ch. 13 - Assume a firm has several hundred possible...Ch. 13 - Explain the effect of the risk-return trade-off on...Ch. 13 - What is the purpose of using simulation analysis?...Ch. 13 - Assume you are risk-averse and have the following...
Ch. 13 - Myers Business Systems is evaluating the...Ch. 13 - Prob. 3PCh. 13 - Prob. 4PCh. 13 - Prob. 5PCh. 13 - Possible outcomes for three investment...Ch. 13 - Prob. 7PCh. 13 - Prob. 8PCh. 13 - Prob. 9PCh. 13 - Prob. 10PCh. 13 - Prob. 12PCh. 13 - Waste Industries is evaluating a 70,000 project...Ch. 13 - Prob. 14PCh. 13 - Debby’s Dance Studios is considering the...Ch. 13 - Prob. 17PCh. 13 - Prob. 18PCh. 13 - Allison’s Dresswear Manufacturers is preparing a...Ch. 13 - Prob. 20PCh. 13 - Prob. 21PCh. 13 - Prob. 22PCh. 13 - Ms. Sharp is looking at a number of different...Ch. 13 - Prob. 25P
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