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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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