Find Expected Values, Standard Deviations and Return to Risk Ratios

question 2

Multiple Choice

Find expected values, standard deviations and return to risk ratios.
-A mid-size company is transitioning to a new ERP system. Consequently, company
Files need to be modified and / or updated so as to be compatible for transfer to the new
System. The company is considering three alternatives to deal with this extra work load:
(1) outsourcing (2) hiring temporary staff or (3) using full time staff in overtime. The
Estimated costs (in $100,000) associated with each of these actions depend on the
Difficulty level associated with file modification and transfer, which can be at one of
Three levels (easy, moderately difficult, or extremely difficult) as shown below. If the
Likelihoods of easy, moderately difficult and extremely difficult file modifications are 0.2,0.4 and 0.4, respectively, the standard deviation in costs (in $100,000) associated with
Outsourcing is $$\begin{array} { | l | l | l | l | } \hline \text { Action } & \text { Easy } & \text { Moderately Difficult } & \text { Extremely Difficult } \\\hline \text { Outsource } & 2.5 & 3.0 & 3.5 \\\hline \text { Temporary Staff } & 1.5 & 2.6 & 4.0 \\\hline \text { Overtime } & 1.2 & 2.8 & 4.2 \\\hline\end{array}$$

• A) 0.37
• B) 0.95
• C) 1.11
• D) 1.23
• E) None of the above

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