Page 224 - 5.2 i. Manac Costing ITC Summarised Notes

INFORMATION FOR DECISION-MAKING

Standard deviation – Example:

Project B:

Coefficient of variation = Standard deviation / Expected value

= 13 000 / 9 000

= 1.444 OR: 144.4%

Conclusion:

Project B is riskier than Project A because of the greater variability of
possible outcomes.

Therefore if Company A is risk averse they should invest in Project A.
Alternatively, if Company A would like to take the risk for the chance of

higher returns they should then invest in Project B.
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