Why is the coefficient of variation a better risk measure, Financial Management

Assignment Help:

Why is the coefficient of variation a better risk measure to use than the standard deviation when evaluating the risk of capital budgeting projects?

The coefficient of variation is a improved risk measure than the standard deviation alone for the reason that the CV adjusts for the size of the project.  The CV calculates the standard deviation divided by the mean and consequently puts the standard deviation into context.  For illustration, a standard deviation of .05 perhaps considered large relative to a mean of .02 however would be considered a small value relative to a mean value of 8. 

 


Related Discussions:- Why is the coefficient of variation a better risk measure

What is the meaning of deviations, What is the meaning of Deviations De...

What is the meaning of Deviations Deviations must be recorded and investigated regardless of the amount involved and then assess whether deviations are isolated departures or i

Profit and loss statement, Profit and Loss statement:   The Profit and L...

Profit and Loss statement:   The Profit and Loss statement is the primary measure of business performance.  As the name suggests, this particular report measure whether the b

Financial management, Financial Management: Financial management is, in...

Financial Management: Financial management is, in its most basic interpretation, the management of costs against revenue. Other management initiatives, such as marketing, are d

Explain pro forma financial statements management goals, Explain how manage...

Explain how management goals are incorporated into pro forma financial statements. Management put a target goal and forecasters makes pro forma financial statements under the

FIANCE AND MANAGERIAL ACCOUNTING, Ask question Open Quick Links Quick Links...

Ask question Open Quick Links Quick Links Page Landmarks Content Outline Keyboard Shortcuts Global Menu Top Frame Tabs My UMass Amherst Tab 1 of 2 (active tab) Help & Resource

Statement of total comprehensive income for the year, At 31 July 2010 this ...

At 31 July 2010 this instrument meets the definition of a derivative: Small or no initial investment. Its value is dependent on an underlying economic item; exchange ra

Define forward exchange rate will be an unbiased predictor, Explain the con...

Explain the conditions under which the forward exchange rate will be an unbiased predictor of the future spot exchange rate. Answer:  the conditions when forward exchange rate

Coverage ratio, Coverage ratios give the relationship between the financial...

Coverage ratios give the relationship between the financial charges of a firm and its ability to service them. The four most commonly used coverage ratios are:

Explain translation gain and losses handled in different way, How are trans...

How are translation gains and losses handled in a different way as per to the current rate method in comparison to the other three techniques, which is the current/noncurrent metho

Write Your Message!

Captcha
Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd