Question

Kyle’s Shoe Stores Inc. is considering opening an additional suburban outlet. An aftertax expected cash flow of $120 per week is anticipated from two stores that are being evaluated. Both stores have positive net present values.
  

Site A								Site B
Probability				Cash Flows				Probability				Cash Flows
	.2				60				.2				30
	.2				120				.1				60
	.3				130				.2				120
	.3				150				.2				150
									.3				180

a. Compute the coefficient of variation for each site. (Do not round intermediate calculations. Round your answers to 3 decimal places.)
  

  
b. Which store site would you select based on the distribution of these cash flows? Use the coefficient of variation as your measure of risk.
  

	Site A
	Site B

Answer 1

Answer to Question b)

The variable with the small Coefficient of Variation is more Dispersed than the Variable with the larger Coefficient of Variation.

The CV of Site A is 26.614%

The CV of Site B is 47.434%

So here is quite evident that dispersion is lower in the Site A , So Site A is to be selected based on the distribution of these cash flows.