Coefficient of variation evaluating risk of capital budget, Financial Management

Why is the coefficient of variation a better risk calculates to use than the standard deviation while evaluating the risk of capital budgeting projects?

The coefficient of variation is a better risk measure as compared to the standard deviation alone as the CV adjusts for the size of the project.  The CV calculates the standard deviation divided by the mean and hence puts the standard deviation into context.  For instance, a standard deviation of .05 may be referred as large relative to a mean of .02 but would be referred a small value relative to a mean value of 8.

Posted Date: 5/7/2013 3:56:34 AM | Location : United States

Related Discussions:- Coefficient of variation evaluating risk of capital budget, Assignment Help, Ask Question on Coefficient of variation evaluating risk of capital budget, Get Answer, Expert's Help, Coefficient of variation evaluating risk of capital budget Discussions

Write discussion on Coefficient of variation evaluating risk of capital budget
Your posts are moderated
Related Questions
Product Advantages: A firm that has developed a reputation for superior products in the domestic market may find acceptance from the foreign consumers as well. Hence, such firm

Demand and Supply Shocks The influence of the above macroeconomic factors on the economic performance can be analyzed by classifying their impact on the economy as a supply or

Under what circumstances will the foreign subsidiary’s financial structure become relevant? The subsidiary’s own financial structure will become applicable when the parent firm

Explain some Examples under FASB 52 that a foreign entity's functional currency would be similar as the parent firm's currency. Answer:  Three instances under FASB 52, in which

How is finance related to the disciplines of accounting and economics? Financial management is fundamentally a combination of economics and accounting. First financial managers

Q. Criticism of Wealth Maximization? i) The objective of wealth maximization is not, necessarily, socially desirable. ii) There is some controversy whether the objective of

What are agency problems? and between what two stakeholders do agency problem typically occur?

Explain and critically evaluate : a)  The relevance of committed fixed costs in deciding the optimal mix of products to maximum a company's profit and the importance of relevant

Banks like to make short-term, self-liquidating loans to businesses.  Why? Banks like can see where the funds are likely to come from such that the borrower is able to use to m

Q. Definition of financial leverage? One of the goals of planning an appropriate capital structure is to maximize the return on equity shareholders fund or else maximize the ea