Question

Metal Manufacturing has isolated four alternatives for meeting its need for increased production capacity. The following table summarizes data gathered relative to each of these alternatives.Calculate the coefficient of variation for each alternative.If the firm wishes to minimize risk, which alternative do you recommend? Why?Alternative Expected return Standard deviation of returnA   20% 7.0%B 22 9.5C 19 6.0D 16 5.5

Answer 1

Answer:

a. 42.5%, 34.4%, 34.21%, 30.63%

b. Option D

The question in proper order

Metal Manufacturing has isolated four alternatives for meeting its need for increased production capacity. The following table summarizes data gathered relative to each of these​ alternatives,

The table is inserted below

(Click on the icon located on the top-right corner of the data table below in order to copy its contents into a spreadsheet.)

a.  Calculate the coefficient of variation for each alternative.  

A?  

B?  

C?

D?  

b.  If the firm wishes to minimize​ risk, which alternative do you​ recommend? ​ Why?

Explanation:

Coefficient of Variation = Standard Deviation/Expected Return * 100%

                                                   Standard

                          Expected         deviation            Coefficient of

Alternative          return               of return             variation

A                          20%                  8.5%                   42.5%

B                          25%                  8.6%                   34.4%

C                          19%                   6.6%                   34.21%

D                          16%                   4.9%                   30.63%

(b)

Coefficient of Variation, CV, denotes the risk per unit of return. This implies that a low CV means a low risk per unit of return. Hence, the firm can minimize risk by opting for option D which gives the lowest CV and therefore offers the lowest risk