Zello Creamery Company would like a new product line-puddings. The expected value and standard deviation of the probability distribution of possible net present values for the product line are $12,000 and $9,000, respectively. The company's existing lines -are ice cream, cottage cheese, and y&rt. The expected values of net present value and standard deviations for these product lines are:

 

The correlation coefficients between products are:

 

a. Compute the expected value and the standard deviation of the probability distribution of possible net present values for a combination consisting of existing products.

b. Compute the expected value and standard deviation for a combination consisting of existing products plus pudding. Compare your results in parts a and b. What can you say about the pudding line?

Transcribed Image Text:

Ice cream Cottage cheese Yogurt Net Present Value $16,000 20,000 10,000 b $8,000 7,000 4,000 Ice cream Cottage cheese Yogurt Net Present Value $16,000 20,000 10,000 b $8,000 7,000 4,000

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