Page 162 - MAC4861_2 Costing class slides part 2
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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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