Equity Eddies Company Net Income Forecast (in 000s)

	Probability of Occurrence
	5%	10%	70%	10%	5%
Operating Income	$100	$200	$400	$600	$700
Interest Expense	0	0	0	0	0
Before-Tax Income	$100	$200	$400	$600	$700
Taxes (28%)	$28	$56	$112	$168	$196
Net Income	$72	$144	$288	$432	$504

Barry Borrowers Company Net Income Forecast (in 000s)

	Probability of Occurrence
	5%	10%	70%	10%	5%
Operating Income	110	220	440	660	770
Interest Expense	40	40	40	40	40
Before-Tax Income	70	180	400	620	730
Taxes (28%)	20	50	112	174	204
Net Income	50	130	288	446	526

As a new loan officer in the Springfield Bank, you are comparing the financial riskiness of two firms. Using the selected information from pro forma statements for each firm attached, complete the following tasks:

1. Calculate the expected values of Equity Eddies and Barry Borrowers net incomes.
2. Calculate the standard deviations of Equity Eddies and Barry Borrowers netincomes.
3. Calculate the coefficients of variation of Equity Eddies and Barry Borrowers net incomes.
4. Compare Equity Eddies and Barry Borrowers degrees of financial risk, which firm do you prefer?
5. If you have 30 percent of your total investment in Equity Eddies, with the expected income of your calculation from (1) and a standard deviation of your calculation from (2), and the remainder 70 percent in Barry Borrowers, with the expected income of your calculation from (1) and a standard deviation of your calculation from (2). The correlation coefficient is 0.6. Determine the expected income and standard deviation for this portfolio.