Calculating Mean, Standard Deviation & CV of Sales

The demand for MICHTEC's products is related to the state of the economy. If the economy is expanding next year (an above-normal growth in GDP), the company expects sales to be $90 million. If a recession occurs next year (a decline in GDP), sales are expected to be $75 million. If next year is normal (a moderate growth in GDP), sales are expected to be $85 million. MICHTEC's economists estimate the chances that the economy will be either expanding, normal, or in a recession next year at 0.2, 0.5, and 0.3, respectively.

a. Compute expected annual sales.
b. Compute the standard deviation of annual sales.
c. Compute the coefficient of variation of annual sales.

Solution Preview

Please refer to the attached file for better clarity of tables and missing formulas

Solution:

a. Compute expected annual sales.
State of economy Probability (P) Sales (S) P*S
Expansion 0.2 90 18.00
Recession 0.3 75 ...

Solution Summary

This solution describes the steps to calculate expected sales, standard deviation of annual sales and coefficient of variation of annual sales.

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