Pabst Dental Supplies is evaluating the introduction of a new product. The possible levels of unit sales and the probabilities of occurrence are given.

Possible Market Reaction	Sales in Units			Probabilities
Low response		25			0.20
Moderate response		40			0.40
High response		70			0.20
Very high response		85			0.20

a. What is the expected value of unit sales for the new product?

Expected value

b. What is the standard deviation of unit sales? (Round the final answer to 2 decimal places.)

Standard deviation

Assume that you are risk averse and have the following three choices.

	Expected Value			Standard Deviation
A	$	1,830		$	970
B		2,760			1,850
C		1,680			1,330

a. Compute the coefficient of variation for each choice. (Round the final answers to 2 decimal places.)

Projects	Coefficient of variation
A
B
C

b. Which project would you select?

• Project B

• Project C

• Project A

You are asked to evaluate the following two projects for Boring Corporation. Use a discount rate of 13 percent. Use Appendix B.

Project X (DVDs of the Weather Reports) ($18,000 Investment)						Project Y (Slow-Motion Replays of Commercials) ($38,000 Investment)
Year		Cash Flow				Year		Cash Flow
1			$9,000			1			$19,000
2			7,000			2			12,000
3			8,000			3			13,000
4			7,600			4			15,000

a. Calculate the profitability index for project X. (Round "PV Factor" to 3 decimal places. Round the final answer to 2 decimal places.)

PI

b. Calculate the profitability index for project Y. (Round "PV Factor" to 3 decimal places. Round the final answer to 2 decimal places.)

PI

c. Using the NPV method combined with the PI approach, which project would you select? Use a discount rate of 13 percent.

• Project Y

• Project X