Statistical techniques of risk measurement (Amount in Rs. lakh) Year 0 1 2 3 4 5 Discount Factor 1.0000 0.8333 0.6944 0.5787 0.

4823 0.4019 Project A Project B Cash Flow Cash Flow -50 -50 10 15 20 15 15 15 25 20 20 25 Present Value of future cash flow Net Present Value of cash flow Project A DCF -50.0000 8.3333 13.8889 8.6806 12.0563 8.0376 50.9967 = 51 (say) 1 Project B DCF -50.0000 12.5000 10.4167 8.6806 9.6451 10.0469 51.2892 = 51 (say) 1

The Standard Deviation (SD) of cash flows of the individual projects (A & B) are computed below: Project A Deviation Deviation Squared Cash Flow (X) (X Xm) (X Xm)2 1 10 -8 64 2 20 2 4 3 15 -3 9 4 25 7 49 5 20 2 4 Total 90 Total 130 Mean (Xm) 18 Mean 26 Standard deviation of cash flow of project A = square root of 26 = 5.1 Year

Project B Deviation Deviation Squared Cash Flow (X) (X Xm) (X Xm)2 1 15 -3 9 2 15 -3 9 3 15 -3 9 4 20 2 4 5 25 7 49 Total 90 Total 80 Mean (Xm) 18 Mean 16 Standard deviation of cash flow of project B = square root of 16 = 4 The coefficient of variation for both the projects can be worked out as under: Project A: (5.1/18)=28.33% Project B:4/18)=22.22%

Year