Coefficient of variation is a better risk calculator
Elaborate the statement: Coefficient of variation is a better risk calculator to use than the standard deviation when estimating the risk of capital budgeting projects.
Expert
a) The variation coefficient is a better risk calculator than the standard deviation because the CV varies according to the size of the project. CV calculates the standard deviation divided by the mean and hence puts the standard deviation into the situation.
b) For instance, a standard deviation of .05 could be considered big relative to a mean of .02 but it would be considered a small value compared to a mean value of 8.
Rs. Sales 2,40,000 Variable costs 1,44,000 Fixed costs 26,000 Profit before tax 70,000 Rate of tax 40% Firm is proposing to buy the new plant that could generate extra annual profit of Rs. 10,000. The fixed cost of new plant is expected to Rs. 4000. New plant would increase sales volume by Rs. 40,00
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