Question: 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

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).

a. Compute the mean, standard deviation, and coefficient of variation for both investments (refer to Chapter 13 if necessary).

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

General Meters Merger General Meters Merger with Firm A with Firm B Possible Earnings Possible Earnings (S in millions) Probability (S millions) Probability S40 60 S40 60 40 .30 .50 25

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