The marketing team of Tara & Co. also have a plan to expand in foreign territories. There are a number of goodwill projects being undertaken by the Government of India for smaller Nations. The marketing team has sele

CS Executive · Corporate Accounting and Financial Management · PYQS · December 2025
The marketing team of Tara & Co. also have a plan to expand in foreign territories. There are a number of goodwill projects being undertaken by the Government of India for smaller Nations. The marketing team has selected two projects for application. Both the projects are being financed by the Government of India and are identical. However, Geeta feels that the project that has less risk embedded in cash flows should be selected. Yearly cash inflow and associated probability are given for the two projects. Proposal X Proposal Y Cash Inflow (₹ crores) Probability Cash Inflow (₹ crores) Probability 4,000 0.2 4,000 0.1 8,000 0.3 8,000 0.4 12,000 0.4 12,000 0.2 16,000 0.1 16,000 0.3 Calculate coefficient of Variation for Proposal X and Proposal Y.

Answer & Explanation:

Calculation of Standard Deviation Proposal X Cash Inflow (₹ crores) Probability Difference from average cash flows (Average is ₹ 10,000) Square of difference Weighted Square of difference Col 2* Col 4 4,000 0.2 -6,000 3,60,00,000.00 72,00,000 8,000 0.3 -2,000 40,00,000.00 12,00,000 12,000 0.4 2,000 40,00,000.00 16,00,000 16,000 0.1 6,000 3,60,00,000.00 36,00,000 1,36,00,000 Average = 40,000/4 = 10000 Standard deviation (Proposal X) = sqrt (1,36,00,000) = 3,687.82 Or 3,688 Proposal Y Cash Inflow (₹ crores) Probability Difference from average cash flows (Average is ₹ 10,000) Square of difference Weighted Square of difference Col 2 * Col 4 4,000 0.1 -6,000 3,60,00,000 36,00,000 8,000 0.4 -2,000 40,00,000 16,00,000 12,000 0.2 2,000 40,00,000 8,00,000 16,000 0.3 6,000 3,60,00,000 1,08,00,000 1,68,00,000 Average = 40,000/4 = 10000 Standard Deviation (Proposal Y) = sqrt (1,68,00,000) = 4,098.78 Or 4,099 Calculation of Coefficient of Variation Coefficient of Variation Standard Deviation / Average of Expected Cash Flows Proposal X = 3,688 / 10,000 36.88% Proposal Y = 4,099 / 10,000 40.99%

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