Question

Treynor Pie Company is a food company specializing in high-calorie snack foods. It is seeking to...

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 companies—a 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 Pie Company + 1.0 $ 102 $ 8 $ 2.0
Gourmet restaurant + 0.6 65 5 1.1
Baby food company + 0.2 55 3 1.8
Nutritional products company 0.5 78 4 3.4


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.)
  

Coefficient of Variation
Treynor Pie Company
Gourmet restaurant
Baby food company
Nutritional products company

a-2. Which company is the least risky?
  

  • Treynor Pie Company

  • Gourmet restaurant

  • Baby food company

  • Nutritional products company

a-3. Which company is the most risky?
  

  • Baby food company

  • Nutritional products company

  • Treynor Pie Company

  • Gourmet restaurant

b. Which of the acquisition candidates is most likely to reduce Treynor Pie Company's risk?
  

  • Nutritional products company

  • Baby food company

  • Gourmet restaurant

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