Question
In: Finance
Problem 13-5 Coefficient of variation [LO13-1] Al Bundy is evaluating a new advertising program that could...
Problem 13-5 Coefficient of variation [LO13-1]
Al Bundy is evaluating a new advertising program that could
increase shoe sales. Possible outcomes and probabilities of the
outcomes are shown next.
| Possible Outcomes | Additional Sales in Units |
Probabilities | ||||
| Ineffective campaign | 50 | 0.20 | ||||
| Normal response | 115 | 0.40 | ||||
| Extremely effective | 360 | 0.40 | ||||
Compute the coefficient of variation. (Do not round
intermediate calculations. Round your answer to
3 decimal places.)
Solutions
Expert Solution
Expected sales=Respective sales*Respective probability
=(0.2*50)+(0.4*115)+(0.4*360)
=200
| probability | Sales | probability*(Sales-Expected Sales)^2 |
| 0.2 | 50 | 0.2*(50-200)^2=4500 |
| 0.4 | 115 | 0.4*(115-200)^2=2890 |
| 0.4 | 360 | 0.4*(360-200)^2=10240 |
| Total=17630 |
Standard deviation=[Total probability*(Sales-Expected Sales)^2/Total probability]^(1/2)
=(17630)^(1/2)
=132.778(Approx)
Coefficient of variation=Standard deviation/Expected sales
=132.778/200
=0.664(Approx)
jeff jeffy answered 2 years agoRelated Solutions
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next.
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Site B
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Lou Barlow, a divisional manager for Sage Company, has an
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Lou Barlow, a divisional manager for Sage Company, has an
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opportunity to manufacture and sell one of two new products for a
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of the last three years. He has computed the cost and revenue
estimates for each product as follows:
Product A
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Initial investment:
Cost of equipment (zero salvage...
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