The coefficient of variation, calculated as the standard deviation of expected returns divided by the expected return, is a stan
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Answer:
The EMV for option a is $4,971,200
The EMV for option b is: $6,101,600
Therefore, option B has the highest expected monetary value.
Explanation:
The EMV of the project is the Expected Money Value of the Project.
This value is given by the sum of each expected earning/cost multiplied by each probability.
So
(a) Proceeding immediately with production of a new top-of-of-the-line stereo TV that has just completed prototype testing.
The firm can expect sales to be 110,000 units at $520 each, with a probability of 0.68 and a 0.32 probability of 65,000 at $520. So:
are the earnings of selling 110,000 units at $520 each. So:
are the earnings of selling 65,000 units at $520 each. So:
The EMV for option a is:
(b) Having the value analysis team complete a study
The firm expets sales of 90,000 units at $760, with a probability of 0.72 and a 0.28 probability of 60,000 units at $760. Value engineering, at a cost of $100,000, is only used in option b. So:
$100,000 is a cost, so it is subtracted.
are the earnings of selling 90,000 units at $760 each. So:
are the earnings of selling 60,000 units at $760 each. So:
The EMV for option b is: