4) (8pts.) Your company is thinking about adding a new product line to reduce it

Question

4) (8pts.) Your company is thinking about adding a new product line to reduce its income variability. Your analysis of your firm's data on the existing product line as well as published industry data reveals the following: Old Product line New Product line Average profit per 1000 units sold Standard Deviation Coefficient of Variation $900 220.86 0.25 $800 190.06 0.24 Firm's Quick Ratio 0.60 Firm's Debt to Asset Ratio 0.52 Given the above data, do you think adding the new product line is a good idea or not? Explain your answer based on what you know about risk management criteria and measures of variability

Explanation / Answer

For Old product line profits to be in range of (900-220.86,900+220.86) is 68% whereas For new product line the profit would be in range (709.94,990.96) is 68% times possible.

CV of old line is higher than CV of new line which states the latter has good precision of profit.

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