Coefficient of variation evaluating risk of capital budget, Financial Management

Assignment Help:

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.


Related Discussions:- Coefficient of variation evaluating risk of capital budget

Uses of index numbers, Uses of Index Numbers 1. Establishes trends ...

Uses of Index Numbers 1. Establishes trends Index numbers when analyzed reveal a general trend of the phenomenon under study. The available figures for inflation based

Explain implications of purchasing power parity, Explain the implications o...

Explain the implications of purchasing power parity for operating exposure. Answer: Determine if the exchange rate changes are matched by the inflation rate differential among

How compound values can be calculated on anannual basis, How Compound value...

How Compound values can be calculated on anannual basis Compound values can be calculated on anannual basis, or on a half-yearly basis or on a monthly basis or on continuous ba

Valuation models, V aluation Models A valuation model defines the e...

V aluation Models A valuation model defines the exercise of applying financial and economic principles to estimate the value of an asset. Discounted cash flow valuation mod

Role of securities firms in investment intermediaries, What is the role of ...

What is the role of securities firms in investment intermediaries? Securities firms assist within the trading of existing securities into the secondary markets. The two major c

Principles of good regulation, Principles of Good Regulation While perf...

Principles of Good Regulation While performing its functions, the FSA needs to take into account certain matters which are termed the ‘principles of good regulation'. The matte

Implications of gordon’s fundamental valuation, Q. Implications of Gordons ...

Q. Implications of Gordons fundamental valuation? Explanation: - The implications of Gordon's fundamental valuation may be as below: (1) While the rate of return of the firm

Walters model, A Ltd sells goods at Rs.10.P.U. Its variable cost Rs.7.P.U a...

A Ltd sells goods at Rs.10.P.U. Its variable cost Rs.7.P.U and fixed cost amount to Rs.1,70,000 it finances all its assets by equity funds. It pays 40% tax on its income. Z Ltd is

Have large bank holding companies increased market share, Have the large ba...

Have the large bank holding companies increased their market share at the expense of smaller institutions? A: No. A study conducted by the Federal Reserve Bank of New York reve

Leadership, AskThink back to a time when you have worked for a supervisor w...

AskThink back to a time when you have worked for a supervisor who moved from one leadership style to another based on situational variables described in the Long and Spurlock (2008

Write Your Message!

Captcha
Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd