Question
A retail company is considering opening a new store in a shopping mall. The company expects that the new store will generate revenues of $2.5
A retail company is considering opening a new store in a shopping mall. The company expects that the new store will generate revenues of $2.5 million per year, but there is a risk that the actual revenue may be lower than expected. The company estimates that the probability of generating $2.5 million in revenue is 60%, while the probability of generating $2.0 million in revenue is 30%, and the probability of generating $1.5 million in revenue is 10%. The fixed costs associated with opening and operating the new store are expected to be $1.5 million per year. The company's required rate of return is 15%. Calculate the expected value, standard deviation, and coefficient of variation for this investment. Based on these calculations, should the company open the new store?
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The detailed answer for the above question is provided below The expected value can be calculated by multiplying each possible revenue by its respective probability and summing the results Expected Va...Get Instant Access to Expert-Tailored Solutions
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