Risk analysis Given the following information, calculate the expected value for

Question

Risk analysis

Given the following information, calculate the expected value for Firm C's EPS. Data for Firms A and B are as follows: E(EPSA) = $5.10, and A = $3.61; E(EPSB) = $4.20, and B = $2.98. Round your answer to two decimal places.

E(EPSC) = $   

You are given that c = $4.11. Discuss the relative riskiness of the three firms' earnings using their respective coefficients of variation. Round your answer to two decimal places.

Probability 0.1 0.2 0.4 0.2 0.1 Firm A: EPSA ($1.64) $1.80 $5.10 $8.40 $11.84 Firm B: EPSB (1.20) 1.39 4.20 7.01 9.60 Firm C: EPSC (2.51) 1.35 5.10 8.85 12.71

Explanation / Answer

Expected value of firm c =sum of ( EPs × probability)

=( 2.51) × .1 + 1.35 × .2 + 5.1 ×.4 + 8.85 ×.2 + 12.71× .1

= 5.1

Hence E(EPSC) = $ 5.1

Cv = standard deviation / expected Eps

Cv A = 3.61 / 5.1= .707

Cv B = 2.98 / 4.2 = .709

Cv C = 4.11 / 5.10 =.805

HENCE IT CAN BE CONCLUDED THAT ,

If we consider EEPs of firms than both Firm A and C has same EePs and bith are good while after considering CV than it can be concluded that firm C has high risk as it has high CV. And firm A has lowest risk as compared to others.

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