Question: Hooper Chemical Company, a major chemical firm
Hooper Chemical Company, a major chemical firm that uses such raw materials as carbon and petroleum as part of its production process, is examining a plastics firm to add to its operations. Before the acquisition, the normal expected outcomes for the firm were as follows:
After the acquisition, the expected outcomes for the firm would be:
a. Compute the expected value, standard deviation, and coefficient of variation before the acquisition.
b. After the acquisition, these values are as follows:
Comment on whether this acquisition appears desirable to you.
c. Do you think the firm’s stock price is likely to go up as a result of this acquisition?
d. If the firm was interested in reducing its risk exposure, which of the following three industries would you advise it to consider for an acquisition? Briefly comment on your answer.
(1) Chemical company
(2) Oil company
(3) Computer company
Transcribed Image Text:
Outcome ($ millions) Probability Recession. $20 0.30 Normal economy 40 0.40 Strong economy . 60 0.30 Outcome ($ millions) Probability Recession.. $10 0.3 Normal economy 40 0.4 Strong economy . 80 0.3 Expected value. 43.0 ($ millions) Standard deviation 27.2 ($ millions) Coefficient of variation. 0.633
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