12. McNeeley Construction Co. is considering two mergers. The first is with Firm A in its own volatile industry, whereas the second is a merger with Firm B in an industry that moves in the opposite direction (and will tend to level out performance due to negative correlation).

a. Compute the mean, standard deviation, and coefficient of variation for both investments (consult Chapter 13 to review statistical concepts if necessary).

b. Assuming investors are risk-averse, which alternative can be expected to bring the higher valuation?

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McNeeley Construction Merger with Firm A Possible Earnings McNeeley Construction Merger with Firm B Possible Earnings (S millions) Probability ($ millions) Probability $10..... .30 $30.... .25 40... .40 40 .50 70... .30 50 .25