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
Calculate the expected value, standard deviation, and coefficient of variation of cash flows for each project.
Expected value = Sum (Probability X Cash Flow)
Standard Deviation = Square root(Sum(Expected value - cash flow)^2XProbability)
Coefficient of variation = ...
The solution explains the calculation of expected value, standard deviation, and coefficient of variation