Answers
Answer a.
Site A:
Expected Cash Flow = 0.20 * 50 + 0.40 * 100 + 0.20 * 110 + 0.10 * 150
Expected Cash Flow = 87
Variance = 0.20 * (50 - 87)^2 + 0.40 * (100 - 87)^2 + 0.20 * (110 - 87)^2 + 0.10 * (150 - 87)^2
Variance = 844.10
Standard Deviation = (844.10)^(1/2)
Standard Deviation = 29.0534
Coefficient of Variation = Standard Deviation / Expected Cash Flow
Coefficient of Variation = 29.0534 / 87
Coefficient of Variation = 0.334
Site B:
Expected Cash Flow = 0.10 * 20 + 0.20 * 50 + 0.40 * 100 + 0.20 * 150 + 0.10 * 180
Expected Cash Flow = 100
Variance = 0.10 * (20 - 100)^2 + 0.20 * (50 - 100)^2 + 0.40 * (100 - 100)^2 + 0.20 * (150 - 100)^2 + 0.10 * (180 - 100)^2
Variance = 2,280
Standard Deviation = (2,280)^(1/2)
Standard Deviation = 47.7493
Coefficient of Variation = Standard Deviation / Expected Cash Flow
Coefficient of Variation = 47.7493 / 100
Coefficient of Variation = 0.477
Answer b.
Coefficient of Variation of Site B is higher than that of Site A, therefore you should select Store Site A.
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