Palmer Corporation recently decided to invest in a local golf course. The compan

Question

Palmer Corporation recently decided to invest in a local golf course. The company has considered several alternatives and has narrowed their decision to either Fairview or Hillsdale. The estimated cash flows for Fairview are as follows:

Fairview

Yearly After-tax Cash inflow (in thousands) . Probability

$70...................................................................... .2

75........................................................................ .2

90........................................................................ .2

105........................................................................ .2

110....................................................................... .2

Find the expected value of cash flows and the coefficient of variation for this course. Assume that Hillsdale has a coefficient of variation of .091. Based upon your answers, which of the following is true?

Select one:

a. The coefficient of variation for Fairview is 0.123.

b. The expected value (of cash flows) for Fairview is $78 thousand.

c. Hillsdale is a less risky investment than Fairview.

d. The coefficient of variation for Fairview is 0.455.

e. Hillsdale is a more risky investment than Fairview.

Explanation / Answer

Expected cash flow = 90

Coefficient of variation = 0.176

ans: c. Hillsdale is a less risky investment than Fairview.

p(x) return p*x p*(x - mean)^2 0.2 70.00% 0.14 0.0080 0.2 75.00% 0.15 0.0045 0.2 90.00% 0.18 0.0000 0.2 105.00% 0.21 0.0045 0.2 110.00% 0.22 0.0080

Related Questions

Navigate

• Browse (All)
• Browse P
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.