Please show your work and be through. 4. The forecast for your firm indicates th

Question

Please show your work and be through.

4. The forecast for your firm indicates there's a 25% chance that Net Income will be $15,000, a 50% chance it will be $20,000, and a 25% chance it will be $25,000.

   a. Given these conditions, what is the expected Net Income for your firm next year?

   b. Given these conditions and your answer to part a, what is the standard deviation of the Net Income estimate?

c. Given your answers to parts a & b, what is the coefficient of variation (CV) of the net income estimate?

6. Assume your firm is zero-growth and pays all its net income in dividends each year Also assume your firm can borrow money when it needs to at an interest rate of 7%. Currently your firm

Explanation / Answer

Here is 4

Expected is .25*15,000 +.50*20,000+.25*25,000= 20,000

Standard deviation is sqrt (.25(15,000-20,000)^2 +..50(20,000-20,000)^2 +.25(25,000-20,000)^2)=7071

CV= 7071/20,000= 0.35355

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