Company A is considering the acquisition of two separate but large companies. Company B and Company C, having sales and assets equal to its own. Table 5.5 gives the probabilities of returns for each of the three companies under various economic conditions. The table also gives the probabilities of returns for each possible combination: Company A plus Company fl, and Company A plus Company C.
a. For each of Companies A, B, and C find the mean return and the standard deviation of returns.
b. Find the mean return and the standard deviation of returns for the combination of Company A plus Company B.
c. Find the mean return and the standard deviation of returns for the combination of Company A plus Company C.
d. Compare the mean returns for each of the two possible combinations-Company A plus
Company B and Company A plus Company C. Is either mean higher? How do they compare to Company A's mean return?
e. Compare the standard deviations of the returns for each of the two possible combinations - Company A plus Company B and Company A plus Company C. Which standard deviation is smaller? Which possible combination involves less risk? How does the risk carried by this combination compare to the risk carried by Company A alone?
f. Which acquisition would you recommend-Company A plus Company B or Company A plus Company C?
Table 5.5

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Economic Condition Probability Returns Company A Company B Returns 19% 17 15 13 Company C Returns 1390 Company A +B Returns 18% 16 14 12 10 Company A + C 17% 15 13 Returns 15% 13 15 17 19 14 14 2