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Estimate the potential cash flows

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Mr. Knowitall is considering a new line of products to his kitchen tool business. He is thinking about adding a line of cookware which he calls "Unique". Mr. Knowitall estimates that the most likely yearly incremental cash flow will be $26,000 but he is not sure. He had his financial manager estimate the potential cash flows for the new product line along with their associated probabilities of occurrence. The estimates are:

Cash Flows Probability of Occurrence

$20,000 1%
$22,000 12%
$24,000 23%
$26,000 28%
$28,000 23%
$30,000 12%
$32,000 1%

The standard deviation of the estimated cash flows is:

The Coefficient of Variation is

If Mr. Knowitall's other product lines on an average have a Coefficient of Variation of 14%, what can we say about the risk of this product line relative to his other product lines:

Reference no: EM132666130

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