QUESTION TWO

XYZ Ltd is considering three possible capital projects for next year.Each project has a 1-year life, and project returns depend on next years state of the economy.The estimated return are shown in the table:

State of the Probability Rate of Return

economyof occurrenceABC

Recession0.2510%9%14%

Average0.50141312

Boom0.25161810

Required:

i.Compute each projects expected rate of return (3 marks)

ii.Compute the variance and standard deviation of each project (11 marks)

iii.Compute the co-efficient of variation for each project(3 marks)

iv.Which is a better project? Why?(3 marks)

(Total 20 Marks)