FINA 3320: Corporate Finance

Project 3: Risk and Return

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

Please show how you got the answer

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 netincomes.

4. Compare Equity Eddies and Barry Borrowers degrees of financial risk, which firm do you prefer?