Reference no: EM131757977

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 w/ Firm A                                           General Meters Merger w/ Firm B

Possible Earnings ($M)  Probability                                         Possible Earnings ($M) Probability

            $20 million             0.10                                                                   $20 million          0.05

            $30 million             0.30                                                                   $30 million          0.40

            $40 million             0.60                                                                   $40 million           0.55

a. Compute the mean, standard deviation, and coefficient of variation for both investments.

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