In the previous problem you found the benefit from delaying an investment decision. Now use the same data to calculate the effect of waiting on the project's risk. By how much will delaying reduce the project's coefficient of variation? (Hint: Use the expected NPV as found in Question 14.)
A) 2.23
B) 2.46
C) 2.70
D) 2.97

Question

Quizplus · Accepted Answer

The coefficient of variation is calculated as the standard deviation divided by the expected NPV. Delaying the investment decision reduces uncertainty, which in turn reduces the standard deviation of the project's NPV. Given the data from the previous problem, the reduction in the coefficient of variation is calculated to be 2.23.

In the Previous Problem You Found the Benefit from Delaying