Question
General Meters is considering two mergers. The first is with Firm A in its own volatile industry, the auto speedometer industry, while the second is
General Meters is considering two mergers. The first is with Firm A in its own volatile industry, the auto speedometer industry, while 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).
General Meters Merger with Firm A | General Meters Merger with Firm B | |||||||||||
Possible Earnings ($ in millions) | Probability | Possible Earnings ($ in millions) | Probability | |||||||||
$ | 45 | 0.20 | $ | 45 | 0.15 | |||||||
50 | 0.20 | 50 | 0.30 | |||||||||
55 | 0.60 | 55 | 0.55 |
a. Compute the mean, standard deviation, and coefficient of variation for both investments. (Do not round intermediate calculations. Enter your answers in millions. Round "Coefficient of variation" to 3 decimal places and "Standard deviation" to 2 decimal places.)
Merger A Merger B
Mean
Standard Deviation
Coefficient of Variation
b. Assuming investors are risk-averse, which alternative can be expected to bring the higher valuation?
-
Merger A
-
Merger B
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