Question

The manager of an event-driven hedge fund becomes aware of some empirical evidence suggesting that companies having a very high value of PFCF (the ratio of stock price to free cash flow per share) relative to their industry average are likely to become targets for acquisition by other firms. The manager gathers the following data about companies of interest: • The probability that a company becomes an acquisition target during the course of a year is 0.45. • 73% of the companies that became acquisition targets had values of PFCF more than three times the industry average. • Only 25% of the companies that were not targeted for acquisition had values of PFCF more than three times the industry average. What should the hedge-fund manager conclude is the probability that a given company with a PFCF more than th

Answer 1