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
Due to the complexity of the tasks involved in many projects, communication of responsibility for those tasks is often helped by means of graphical planning techniques.

The cash flows from a portfolio of US standard mortgages have the characteristic of being uncertain. The cash flows from the mortgage consists of three comp

Determination of explicit cost of capital Approach of determination of explicit cost of capital is similar to the one used to ascertain IRR, with one difference, in case of co

I have a presentation to give on ''New ways'' Microsoft can improve its ''Partnership Strategies''. Can some one please give some good links or insights into the same.

explain the significance of operating leverage and financial with the help of example?

Alternative summarised version of tests of controls · Segregation of duty (staff records are separate from wages department) · Documentation ( written evidence ) ·

a) Debentures are a source of external long term (loan) finance for which interest is paid to the debenture holder. Debenture holders do not usually have voting or ownership rights

Corporates generally raise funds from the Inter Corporate Deposit (ICD) markets. These instruments generally carry interest rates higher than the other short-term

Explain contingent exposure and define the advantages of using currency options to manage this type of currency exposure. Answer: Companies may come across a state where they m

discuss the applicability ofan operating cycle in a poultry business(broilers)