XYZ Corporation is considering two investment opportunities, A and B. The initial investment required for both investments
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Question:
XYZ Corporation is considering two investment opportunities, A and B. The initial investment required for both investments is $500,000. The cash inflows and their probabilities for both investments are shown in the table below:
Cash Inflows | Probability of Cash Inflows for Investment A | Probability of Cash Inflows for Investment B |
---|---|---|
$250,000 | 0.3 | 0.2 |
$300,000 | 0.5 | 0.5 |
$400,000 | 0.2 | 0.3 |
The required rate of return for the investments is 10%. Which investment opportunity should XYZ Corporation choose, based on the expected value, standard deviation, and coefficient of variation of the cash inflows?
Related Book For
Fundamental Managerial Accounting Concepts
ISBN: 978-0078025655
7th edition
Authors: Thomas Edmonds, Christopher Edmonds, Bor Yi Tsay, Philip Old
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