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Project selection

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.

a. which of the following four projects should Mountain Ski Corp. choose? Compute the coefficients of variation to help you make your decision.

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

Year Returns Expected Value Standard Deviation
A $527,000 $834,000
B 682,000 306,000
C 74,000 135,000
D 140,000 89,000

Solution Preview

The coefficient of variation measures the risk per unit of return
Coefficient of variation (CV) = standard deviation / expected return
The ...

Solution Summary

The solution explains how to do project selection based on coefficient of variation