Mountain Ski Corp. was set up to take large risks and is willing to take the gre

Question

Mountain Ski Corp. was set up to take large risks and is willing to take the greatest risk possible. Lakeway Train Co. is more typical of the average corporation and is risk-averse.
  

a-1. Compute the coefficients of variation. (Round your answers to 3 decimal places.)
  

  
a-2. Which projects should Mountain Ski Corp. choose?
  

b. Which one of the four projects should Lakeway Train Co. choose based on the same criteria of using the coefficient of variation?
  

Projects Returns:
Expected Value Standard
Deviation A $ 310,000 $ 138,000 B 719,000 428,000 C 89,000 110,000 D 135,000 215,000

Explanation / Answer

Answer to Part a-1.

Coefficient of Variation = Standard Deviation / Expected Return

Project A:
Coefficient of Variation = 138,000 / 310,000
Coefficient of Variation = 0.445

Project B:
Coefficient of Variation = 428,000 / 719,000
Coefficient of Variation = 0.595

Project C:
Coefficient of Variation = 110,000 / 89,000
Coefficient of Variation = 1.236

Project D:
Coefficient of Variation = 215,000 / 135,000
Coefficient of Variation = 1.593

Answer to Part a-2.

Mountain Ski Corp. should choose Project D, as it has highest Coefficient of Variation.

Answer to Part a-3.

Lakeway Train Co. should choose Project A, as it has smallest Coefficient of Variation.

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