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Karamos Shoe Stores Inc. is considering opening an additional suburban

Karamos Shoe Stores Inc. is considering opening an additional suburban outlet. An aftertax expected cash flow of $130 per week

Question:

Karamo’s Shoe Stores Inc. is considering opening an additional suburban outlet. An aftertax expected cash flow of $130 per week is anticipated from two stores that are being evaluated. Both stores have positive net present values.
Which store site would you select based on the distribution of these cash flows? Use the coefficient of variation as your measure of risk.

Probability 0.3 0.3 0.1 0.3 Site A Cash Flows 80 130 160 170 Probability 0.2 0.2 0.3 0.1 0.2 Site B Cash

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Probability 0.3 0.3 0.1 0.3 Site A Cash Flows 80 130 160 170 Probability 0.2 0.2 0.3 0.1 0.2 Site B Cash Flows 50 80 130 180 235

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Site A is the preferred site since it has the smallest coefficient of variation Because …View the full answer

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PALASH JHANWAR

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