Question

A.) Shack Homebuilders Limited is evaluating a new promotional campaign that could increase home sales. Possible outcomes and probabilities of the outcomes are shown next.     

Possible Outcomes	Additional Sales in Units			Probabilities
Ineffective campaign		60			0.20
Normal response		80			0.20
Extremely effective		120			0.60

Compute the coefficient of variation. (Do not round intermediate calculations. Round your answer to 3 decimal places.)

B.) 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
	0.2				70				0.1				30
	0.3				120				0.3				60
	0.3				130				0.1				120
	0.2				155				0.3				150
									0.2				210

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

A)