Question

Hooper Chemical Company, a major chemical firm that uses such raw materials as carbon and petroleum as part of its production process, is examining a plastics firm to add to its operations. Before the acquisition, the normal expected outcomes for the firm were as follows:
  

	Outcomes ($ millions)			Probability
Recession	$	35			.4
Normal economy		55			.2
Strong economy		75			.4

Compute the expected value, standard deviation, and coefficient of variation prior to the acquisition. (Do not round intermediate calculations. Enter your dollar answers in millions rounded to 2 decimal places (e.g., $12,300,000 should be entered as "12.30"). Round the coefficient of variation to 3 decimal places.)
  

Answer 1

	Probability (P)	RETURN (Y)	(P * Y )	P * (Y -Average Return of Y)^2
RECESSION	40%	35	14.00	160.00
NORMAL ECONOMY	20%	55	11.00	0.00
STRONG ECONOMY	40%	75	30.00	160.00
		TOTAL	55.00	320.00
Expected Return =		(P * Y)
		55.00
VARIANCE =		P * (Y -Average Return of Y)^2
		320.00
Standard Deviation =		Square root of (P * (Y -Average Return of Y)^2)
		Square root of 320
		17.89
COEFFICIENT OF VARIATION=		STANDARD DEVIATION/ MEAN
		17.89 / 55
		0.325