Why is the coefficient of variation a better risk measure, Financial Management

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







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
Related Questions
Question 1 What are the limitations of management accounting? Question 2 Explain the significance of financial analysis Question 3 What are the advantages of the value a

ARROW as an FSA's risk based approach to regulation ARROW stands for Advanced, Risk-Responsive Operating Framework. In January 2000, FSA set out a proposed approach to regulati

Explain the four fundamental rights of ownership A shareholder, by virtue of being an owner, is generally entitled to four fundamental rights of ownership: 1. Claim on a sha

How do mergers affect consumers? A: The impacts mergers have on consumers vary widely. There may be a few inconvenience and anxiety when a customer's bank or branch is obtained

MBS are the most complicated securities that are sensitive to interest rates. The factors that affect the price of MBS are varied and most of th

PLAYERS IN THE PRIMARY MARKET Some important players in the primary market are: Merchant Bankers When a company approaches the public for funds, merchant bankers manage

Q. Determine the proportion of debt and equity? Financing Decision: - This function is related to increasing of finance from different sources. For this reason the financial ma

State the Analytical procedures at the planning stage Auditors must apply analytical procedures at the planning stage to help in understanding the entity's business, in identi

What is the difference between pro forma financial statements and a cash budget?  Explain why pro forma financial statements are not used to forecast cash needs. Pro forma

What is the primary advantage to a corporation of investing some of its funds in working capital? By investing in working capital a firm acquires the liquidity it requirements he