Question

Kyle’s Shoe Stores Inc. is considering opening an additional suburban outlet with the following data:

Probability      NPV

.3                     80

.3                     130

.1                     160

.3                     170

What is the coefficient of variation for the new outlet? Round intermediate calculations and the answer to the hundredth place.

If a second possible outlet has a coefficient of variation of .50, would you prefer this second outlet over the first outlet considered? Enter yes or no.

Answer 1

Probability of outcome (P)	NPV (x)	Px	(x-Expected return)^2	P*(x-Expected return)^2
0.30	80	24.00	2500.00	750.00
0.30	130	39.00	0.00	0.00
0.10	160	16.00	900.00	90.00
0.30	170	51.00	1600.00	480.00
Total		130.00	5000.00	1320.00
Expected NPV= ∑Px= 130
Variance OF NPV= ∑P*(x-Expected return)^2
	1320
Standard deviation of NPV= Sq root of (Variance)
	Sq root (1320)
	36.332
CVnpv= (SD/Mean)
(36.332/130)
0.279
No, the second outlet will not be preferred as the coefficient of variation is higher in comparison to the first outlet.