Problem 13-1 (Algo) Risk-averse [LO13-2] Assume you are risk-averse and have the following three choices. Standard Project Expected Value A B C $ 1,830 2,760 1,680 Deviation $ 970 1,850 1,330 a. Compute the coefficient of variation for each. Note: Round your answers to 3 decimal places. Coefficient of Project Variation A B C b. Which project will you select? O Project B O Project C O Project A Problem 13-10 (Algo) Risk-averse [LO13-2] Tim Trepid is highly risk-averse while Mike Macho actually enjoys taking a risk. Investments Buy stocks Buy bonds Buy commodity futures Buy options Returns: Expected Value Standard Deviation $ 8,980 $ 6,590 7,680 2,670 19,900 28,000 15,100 18,600 a-1. Compute the coefficients of variation. Note: Round your answers to 3 decimal places. Buy stocks Buy bonds Buy commodity futures Buy options Coefficient of Variation a-2. Which one of the following four investments should Tim choose? Buy bonds Buy stocks Buy commodity futures Buy options b. Which one of the four investments should Mike choose? Buy bonds Buy stocks Buy commodity futures Buy options Prodiem 13-15 (Aigo) risk-aajustea aiscount rate [LU13-3] Waste Industries is evaluating a $56,900 project with the following cash flows. Years Cash Flows 1 $ 9,710 2 19,200 3 26,500 4 5 19,800 27,300 The coefficient of variation for the project is 0.443. Discount Coefficient of Variation Rate 0 -0.25 7% 0.26 -0.50 9% 0.51 -0.75 13% 0.76 - 1.00 16% 1.01 -1.25 19% Use Appendix B for an approximate answer but calculate your final answer using the formula and financial calculator methods. a. Select the appropriate discount rate. O O O O O 7% 19% 13% 9% 16% b. Compute the net present value. Note: Negative amount should be indicated by a minus sign. Do not round intermediate calculations and round your answer to 2 decimal places. Net present value c. Based on the net present value should the project be undertaken? No Yes Problem 13-3 (Algo) Expected value and standard deviation [LO13-1] Sampson Corporation is evaluating the introduction of a new product. The possible levels of unit sales and the probabilities of their occurrence are shown next: Possible Market Reaction Low response Moderate response High response Very high response Sales in Units Probabilities 20 0.40 70 0.20 80 0.10 100 0.30 a. What is the expected value of unit sales for the new product? Note: Do not round intermediate calculations and round your answer to the nearest whole unit.) Expected value units b. What is the standard deviation of unit sales? Note: Do not round intermediate calculations. Round your answer to 2 decimal places. Standard deviation units Problem 13-4 (Algo) Coefficient of variation [LO13-1] Shack Homebuilders Limited is evaluating a new promotional campaign that could increase home sales. Possible outcomes and probabilities of the outcomes are shown next. Possible Outcomes Ineffective campaign Normal response Extremely effective Compute the coefficient of variation. Additional Sales in Units Probabilities 40 90 115 0.30 0.50 0.20 Note: Do not round intermediate calculations. Round your answer to 3 decimal places. Coefficient of variation