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 PieCompany | + | 1.0 | $ | 164 | $ | 9 | $ | 3.0 | ||||||
Gourmet restaurant | + | .7 | 64 | 8 | 1.4 | |||||||||
Baby food company | + | .1 | 51 | 6 | 1.7 | |||||||||
Nutritionalproducts company | .8 | 77 | 7 | 3.1 | ||||||||||
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?
Gourmet restaurant | |
Treynor Pie Company | |
Nutritional products company | |
Baby food company |
a-3. Which company is the most risky?
Nutritional products company | |
Treynor Pie Company | |
Baby food company | |
Gourmet restaurant |
b. Which of the acquisition candidates is most likely to reduce Treynor Pie Company's risk?
Baby food company | |
Gourmet restaurant | |
Nutritional products company |
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