Problem
Project A Project B
Solution
Expected Cash Flow for Project A = (1000 x 0.2) + (800 x 0.6) + (600 x 0.2)
= 800
Expected Cash Flow for Project B = (1200 x 0.2) + (800 x 0.6) + (400 x 0.2)
= 800
C) Let us calculate the ‘Standard Deviation’ from the Mean for Project A
= (8000 + 0 + 8000)
= 16000
Step 5: Square Root of the Total Deviation (i.e. Variance) to get the Standard
Deviation
σ = ∫16000
σ = 126.79
D) Let us calculate the ‘Standard Deviation’ from the Mean for Project B
Following are the steps for the calculation of Standard Deviation from the mean for
Project B.
= (32000 + 0 + 32000)
= 64000
Step 5: Square Root of the Total Deviation (i.e. Variance) to get the Standard
Deviation
σ = ∫64000
σ = 252.98
Project A Project B