Question
Treynor Pie Company is a food company specializing in high-calorie snack foods. It is seeking to diversify its food business and lower its risks. It
Treynor Pie Company is a food company specializing in high-calorie snack foods. It is seeking to diversify its food business and lower its risks. It is examining three companiesa gourmet restaurant chain, a baby food company, and a nutritional products firm. Each of these companies can be bought at the same multiple of earnings. The following represents information about all the companies.
| Company | Correlation with Treynor Pie Company | Sales ($ millions) | Expected Earnings ($ millions) | Standard Deviation in Earnings ($ millions) | ||||||||||
| Treynor Pie Company | + | 1.0 | $ | 162 | $ | 10 | $ | 4.0 | ||||||
| Gourmet restaurant | + | 0.6 | 66 | 7 | 1.6 | |||||||||
| Baby food company | + | 0.2 | 57 | 3 | 1.6 | |||||||||
| Nutritional products company | 0.5 | 74 | 5 | 3.5 | ||||||||||
a-1. Compute the coefficient of variation for each of the four companies. (Enter your answers in millions (e.g., $100,000 should be entered as ".10"). Round your answers to 3 decimal places.)
a-2. Which company is the least risky?
-
Treynor Pie Company
-
Baby food company
-
Nutritional products company
-
Gourmet restaurant
a-3. Which company is the most risky?
-
Baby food company
-
Gourmet restaurant
-
Treynor Pie Company
-
Nutritional products company
b. Which of the acquisition candidates is most likely to reduce Treynor Pie Company's risk?
-
Nutritional products company
-
Gourmet restaurant
-
Baby food company
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started
An Introduction To Financial Markets A Quantitative Approach
Authors: Paolo Brandimarte
1st Edition
1118014774, 9781118014776
