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    Expected value, standard deviation,coefficient of variation

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    A firm is considering two alternative projects. Project A needs an investment of $800,000. Project B needs an investment of $750,000. Relevant annual cash flow data for the two projects over their expected seven-year lives are as follows:

    Project A Project B
    Pr. Cash Flow Pr. Cash Flow
    0.50 $ 0 0.045 $ 0
    0.50 500,000 0.910 200,000
    0.045 400,000

    Calculate the expected value, standard deviation, and coefficient of variation of cash flows for each project.

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    Solution Preview

    Expected value = Sum (Probability X Cash Flow)
    Standard Deviation = Square root(Sum(Expected value - cash flow)^2XProbability)
    Coefficient of variation = ...

    Solution Summary

    The solution explains the calculation of expected value, standard deviation, and coefficient of variation