A firm has to select a project from among four mutually exclusive projects with

Question

A firm has to select a project from among four mutually exclusive projects with the risk/return characteristics in the table below. Which of the following statements BEST describes how this selection should be made?
Project A B C D
Expected Return 23% 15% 18% 20%
Standard Deviation 12% 7.69% 8.23% 10.67%
____
Project A should be chosen because it has the highest expected return
Project B should be selected because it has a standard deviation of only 7.69%
Project C should be accepted because it has the lowest coefficient of variation
Project D should be picked because it has the highest coefficient of variation

Explanation / Answer

Coefficient of variation for 4 projects A = 12/23 = 0.52 B = 0.51 C = 0.46 D = 0.53 Project C should be accepted because it has the lowest coefficient of variation

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