Economics
Mr. Thompson is considering investing in two period projects with the following probabilities and cash flows:
| Probability | Cash Flow | |
| Period 1 | .25 | 1000 |
| .50 | 1200 | |
| .25 | 1400 | |
| Period 2 | .30 | 600 |
| .50 | 1000 | |
| .20 | 1400 |
The discount rate is 7%, and the initial investment is $2,000. How much is the expected NPV of this project? Should Mr. Thompson invest or not? Briefly explain your reasoning.
The Paper Cup Company has estimated the following revenue possibilities for the year.
| Sales | Probability |
| 1000 | 0.15 |
| 1500 | 0.20 |
| 2200 | 0.30 |
| 2900 | 0.20 |
| 3900 | 0.15 |
- Find the expected revenue.
- Find the standard deviation.
- Find the coefficient of variation.
- Which of the two measures above (a. or b.) is a better measure of risk when comparing projects with different NPV?
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