Question

In: Finance

General Meters is considering two mergers. The first is with Firm A in its own volatile...

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 0.40 $ 40 0.35
60 0.50 60 0.60
80 0.10 80 0.05

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.)
  

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

Solutions

Expert Solution

Answer 1

Expected Return 54 54
Standard Deviation 12.81 11.14
Coefficient of variation (SD/Mean * 100) 23.715 20.621

Expected Return =∑( Probability * Return ) and Standard Deviation =

Coefficient of varioation = SD/Mean * 100

Excel formula

Result

Answer 2 If investors are risk averse they should go for option B as the variation (measured by coefficient of Variation) is lower in case of alternative B

jeff jeffy answered 1 year ago
Next > < Previous

Related Solutions

General Meters is considering two mergers. The first is with Firm A in its own volatile...
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 $ 45 0.20 $ 45 0.15...
General Meters is considering two mergers. The first is with Firm A in its own volatile...
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 $ 20 .20 $ 20 .15...
An incumbent firm is considering expanding its capacity. It can do so in one of two...
An incumbent firm is considering expanding its capacity. It can do so in one of two ways. It can purchase fungible, general purpose equipment and machinery that can be resold at close to its original value. Or it can invest in highly specialized machinery that, once it is put in place, has virtually no salvage value. Assuming that each choice results in the same production costs once installed, under which choice is the incumbent likely to encounter a greater likelihood...
Suppose that a firm is considering hiring a worker and providing the worker with general training....
Suppose that a firm is considering hiring a worker and providing the worker with general training. The workers MPL is $100 during the training period, but rises to $200 in the post-training period. The workers wage is $100 during the training period, the cost of training is $50 and the discount rate is 10 percent. What is the most that a profit-maximizing firm can afford to pay the worker in the second period?
Two retailers compete on price in a market. Firm 1’s demand depends on both its own...
Two retailers compete on price in a market. Firm 1’s demand depends on both its own price and firm 2’s price as follows: ?1 = ? - ??1 + ?2. Similarly, firm 2’s demand depends on its own price and firm 1’s price: ?2 = ? - ??2 + ?1. Their marginal costs of producing one unit of product are both c. a. Find the expression of firm 1’s equilibrium price. b. Find the expression of firm 1’s equilibrium profit.
A major retail firm is considering a major change in its distribution system. It is considering...
A major retail firm is considering a major change in its distribution system. It is considering relocating its distribution centers such that all retail stores can be replenished within 24 hours of a request for merchandise. The table below is a matrix of cover coefficients for 10 stores and 10 potential sites for distribution centers. If store i can be replenished within 24 hours from site j, then a_ij=1; otherwise a_ij=0. The cost of installation of the distributions centers vary...
In your own words, please define ‘community of practice’ in general and identify its advantages as...
In your own words, please define ‘community of practice’ in general and identify its advantages as a way of doing research.
Assume there are two firms in two different industries. The marginal cost of the first firm...
Assume there are two firms in two different industries. The marginal cost of the first firm is $30, and its price is $38. The marginal cost of the second firm is $22, and its price is $26. Calculate first the Lerner Index for each firm. Then use it to calculate the markup factor for each firm. Which firm has a higher markup factor over marginal cost? Please explain your answer
A company is considering three options for managing its data processing operation: continuing with its own...
A company is considering three options for managing its data processing operation: continuing with its own staff, hiring an outside vendor to do the managing, or using a combination of its own staff and an outside vendor. There are three levels of demand under consideration: high, medium, and low. The annual profit associated with each option (in $1,000) for each level of demand is given below:                                                  Demand Level Staffing Options         High      Medium       Low       Own staff                    ...
The Gap is considering 3 options for managing its data processing operations: continue with its own...
The Gap is considering 3 options for managing its data processing operations: continue with its own staff, hire an outside vendor to do the managing (outsourcing), or use a combination of its own staff and an outside vendor. The cost of operation depends on future processing demand. Demand Staffing Options High Medium Low Own Staff 650 650 600 Outsource 900 600 300 Combination 800 650 500 (e) Suppose the probability demand will be high is 0.2 but the other probabilities...
ADVERTISEMENT
Subjects
ADVERTISEMENT
Latest Questions
ADVERTISEMENT