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

The coefficient of variation is a improved risk measure than the standard deviation alone for the reason that the CV adjusts for the size of the project.  The CV calculates the standard deviation divided by the mean and consequently puts the standard deviation into context.  For illustration, a standard deviation of .05 perhaps considered large relative to a mean of .02 however would be considered a small value relative to a mean value of 8. 

 

Posted Date: 6/17/2013 7:12:15 AM | Location : United States

Ask an Expert

Related Discussions:- Why is the coefficient of variation a better risk measure, Assignment Help, Ask Question on Why is the coefficient of variation a better risk measure, Get Answer, Expert's Help, Why is the coefficient of variation a better risk measure Discussions

Write discussion on Why is the coefficient of variation a better risk measure
Your posts are moderated

Write your message here..

Related Questions

Deriving 6-month forward rates, Using details from table 8, let us co... Using details from table 8, let us compute the 6-month forward rate. Simple arbitrage principle, like the one used to compute the spot rates are used in this proc

Capital budgeting., definition and importance of capiyal budgeting definition and importance of capiyal budgeting

Receivable management, explain about receivable management explain about receivable management

Calculate the net investment of the firm, Problem: i) Assume a firm bu... Problem: i) Assume a firm buys a new tooling machine for Rs 2000,000, installation costs net of taxes are Rs 300,000. An existing asset has a book value of Rs 400,000 and the

Foreign exchange rates, Foreign Exchange Rates The proportional va... Foreign Exchange Rates The proportional value of one currency to other, used to exchange currency from one denomination to another.  For example, one British pound is wort

What are the financing methods, Q. What are the financing methods? - Th... Q. What are the financing methods? - The export transaction could be correlated to a bill of exchange. If this bill was established (guaranteed) by the bank it could be discoun

Federal agency securities, Federal Agency Securities are those securi... Federal Agency Securities are those securities issued by federally related institutions and those issued by Government-Sponsored Enterprises (GSE). Securities iss

Under armour finance, I need a paper on the financial status of the company... I need a paper on the financial status of the company under armour with ratios using information from yahoo.com finances. & Id like to provide a document with further details

Finanical planning , financial planning financial planning

Fiancial management, Ashok is to receive an amount of Rs. 15,00,000 from hi... Ashok is to receive an amount of Rs. 15,00,000 from his relative after 3 years. He wants to buy a house for which he wants the money to be paid now. His relative had already invest