Risk

1) Five investment alternatives have the following returns and standard deviations of returns. Alternative Returns: Expected Value Standard Deviation $1,000 $590 3,000 600 3,000 750 D 5,000 2,300 10,000 800 Using the coefficient of variation, rank the five alternatives from lowest risk to highest risk. mo 2) Debby's Dance Studios is considering the purchase of a new sound system that will enhance the popularity of its aerobics dancing. The equipment will cost $25,000. Debby is not sure how many members the new equipment will attract, but she estimates that her increased annual cash flows for each of the next five years will have the following probability distribution. Debby's cost of capital is 11%. Cash Flow Probability $3,600 2 5,000 3 7,400 9,800 a) What is the expected value of the cash flow? The value you compute will apply to each of the five years. b) What is the expected net present value? Should Debby purchase the system? 3) What is the purpose of calculating the coefficient of variance in capital budgeting