Swift Manufacturing is choosing between two asset purchase projects. Project 257 has an expected return of 0.45 and a standard deviation of 0.165. Project 432 has a lower expected return of 0.3 but also a lower standard deviation of 0.106. While Project 257 has a higher expected return, Project 432 is considered less risky because it has a lower coefficient of variation (CV) of 0.3536 compared to Project 257's CV of 0.3675.

1. Solutions Guide: Please reword the answers to essay type parts so as to guarantee that
your answer is an original. Do not submit as is
Assessing return and risk. Swift Manufacturing must choose between two asset
purchases. The annual rate of return and the related probabilities given in the following
table summarize the firm’s analysis to this point. Project 257 Project 432 Rate of return
Probability Rate of return Probability -10% 0.01 10% 0.05 10 0.04 15 0.10 20 0.05 20
0.10 30 0.10 25 0.15 40 0.15 30 0.20 45 0.30 35 0.15 50 0.15 40 0.10 60 0.10 45 0.10 70
0.05 50 0.05 80 0.04 100 0.01 A) For each project, compute: (1) The range of possible
rate of return. (2) The expected return. (3) The standard deviation of the returns. (4) The
coefficient of variation. b) Construct a bar chart of each distribution of rates of return. c)
Which project would you consider less risky? Why?
1. Range: 1.00 - (-.10) = 1.10
2. Expected return: ir
n
1i
i Pkk ∑=
×=
Rate of Return Probability Weighted Value Expected Return
ki Pri ki x Pri ir
n
1i
i Pkk ∑=
×=
-.10 .01 -.001
.10 .04 .004
.20 .05 .010
.30 .10 .030
.40 .15 .060
.45 .30 .135
.50 .15 .075
.60 .10 .060
.70 .05 .035
.80 .04 .032
1.00 .01 .010
1.00 .450
3. Standard Deviation: ∑=
−=σ
n
1i
i )kk( 2
x Pri
ki k kki − )kk( i − 2
Pri )kk( i − 2
x Pri
-.10 .450 -.550 .3025 .01 .003025
.10 .450 -.350 .1225 .04 .004900
.20 .450 -.250 .0625 .05 .003125
.30 .450 -.150 .0225 .10 .002250
.40 .450 -.050 .0025 .15 .000375

2. .45 .450 .000 .0000 .30 .000000
.50 .450 .050 .0025 .15 .000375
.60 .450 .150 .0225 .10 .002250
.70 .450 .250 .0625 .05 .003125
.80 .450 .350 .1225 .04 .004900
1.00 .450 .550 .3025 .01 .003025.
.027350
σProject 257 = .027350 = .165378
4. 3675.
450.
165378.
CV ==
Project 432
1. Range: .50 - .10 = .40
2. Expected return: ir
n
1i
i Pkk ∑=
×=
Rate of Return Probability Weighted Value Expected Return
ki Pri ki x Pri ir
n
1i
i Pkk ∑=
×=
.10 .05 .0050
.15 .10 .0150
.20 .10 .0200
.25 .15 .0375
.30 .20 .0600
.35 .15 .0525
.40 .10 .0400
.45 .10 .0450
.50 .05 .0250
1.00 .300
3. Standard Deviation: ∑=
−=σ
n
1i
i )kk( 2
x Pri
ki k kki − )kk( i − 2
Pri )kk( i − 2
x Pri
.10 .300 -.20 .0400 .05 .002000
.15 .300 -.15 .0225 .10 .002250
.20 .300 -.10 .0100 .10 .001000
.25 .300 -.05 .0025 .15 .000375
.30 .300 .00 .0000 .20 .000000
.35 .300 .05 .0025 .15 .000375
.40 .300 .10 .0100 .10 .001000
.45 .300 .15 .0225 .10 .002250
.50 .300 .20 .0400 .05 .002000
.011250

3. σProject 432 = .011250 = .106066
4. 3536.
300.
106066.
CV ==
b. Bar Charts
Project 257
Probability
0
0.05
0.1
0.15
0.2
0.25
0.3
-10% 10% 20% 30% 40% 45% 50% 60% 70% 80% 100%
Rate of Return
Project 432
0
0.05
0.1
0.15
0.2
0.25
0.3
10% 15% 20% 25% 30% 35% 40% 45% 50%
Probability
Rate of Return

4. c. Summary Statistics
Project 257 Project 432
Range 1.100 .400
Expected Return ( k ) 0.450 .300
Standard Deviation ( kσ ) 0.165 .106
Coefficient of Variation (CV) 0.3675 .3536
Since Projects 257 and 432 have differing expected values, the coefficient of
variation should be the criterion by which the risk of the asset is judged. Since
Project 432 has a smaller CV, it is the opportunity with lower risk.