In an article in the Journal of Retailing, Kumar, Kerwin, and Pereira noted factors affecting

merger and acquisition activity in retailing. As part of the study, the authors compared the

characteristics of "target firms" (firms targeted for acquisition) and "bidder firms" (firms

attempting to make acquisitions). Among the variables studied in the comparison were

earnings per share, debt-to-equity ratio, growth rate of sales, market share, and extent of

diversification.

1. Let be the mean growth rate of sales for all target firms (firms that have been targeted

for acquisition in the last five years and that have not bid on other firms), and assume

growth rates are approximately normally distributed. Furthermore, suppose a random

sample of 25 target firms yields a sample mean sales growth rate of 0.16 with a

standard deviation of 0.12. Use critical values and this sample information to test H0:

= .10 versus Ha: >.10 by setting equal to .10, .05, .01, and .001. How much

evidence is there that the mean growth rate of sales for target firms exceeds .10 (that is,

exceeds 10 percent)?

BUS 606 Syllabus

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2. Now let be the mean growth rate of sales for all firms that are bidders (firms that have

bid to acquire at least one other firm in the last five years), and again assume growth

rates are approximately normally distributed. Furthermore, suppose a random sample of

25 bidders yields a sample mean sales growth rate of 0.12 with a standard deviation of

0.09. Use critical values and this sample information to test H0: = .10 versus Ha: >

.10 by setting equal to .10, .05, .01, and .001. How much evidence is there that the

mean growth rate of sales for bidders exceeds .10 (that is, exceeds 10 percent)?