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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
$ 40 .30 $ 40 .25
50 .20 50 .30
60 .50 60 .45

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 $52
Standard deviation $8.72 $8.06
Coefficient of variation $0.168

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

Merger A
Merger B

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