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

Why we measure a project''s risk as the change in the cv, Explain why we me...

Explain why we measure a project's risk as the change in the CV. We compute a project's risk as the change in the coefficient of variation for the reason that this focuses on t

Valuation methods, Valuation Methods: 2 - Year Method Perpetual ...

Valuation Methods: 2 - Year Method Perpetual Growth Method Constant Growth Method Zero Growth Method Growth Phases Valuation Model:  'Constant Growth Met

What is an audit?, Question 1 What is Depreciation? Question 2 What a...

Question 1 What is Depreciation? Question 2 What are the elements of an accounting system? Question 3 How do you prepare Flexible Budget? Question 4 Briefly explain

What happens when a bank charges discount interest on a loan, What happens ...

What happens when a bank charges discount interest on a loan? While a bank charges discount interest on a loan the required interest payment is subtracted from the loan carries o

State about investment decision, State about Investment decision Dec...

State about Investment decision Decisions relating to investment in both current and capital assets. Finance manager has to evaluate different capital investment proposalsan

Minimax decision, How to compare minimax and maximin with figures and comme...

How to compare minimax and maximin with figures and commentary ?

Australian securities and investment commission, Australian Securities and ...

Australian Securities and Investment Commission: The Australian Securities and Investment Commission (ASIC) is an independent government body established by the ASIC Act 1989.

Hazard or risk, the procedures, techniques or strategies that could or shou...

the procedures, techniques or strategies that could or should be implemented to reduce the likelihood of harm > actions that could be taken to eliminate the hazard or reduce the r

China emerged as second most significant recipient of fdi, How would you de...

How would you describe the fact that China emerged as the second most significant recipient of FDI after the United States in recent years? Answer: China attracted a large deal o

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