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

Question

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.

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.)

Company Correlation with
Treynor Pie
Company Sales
($ millions) Expected Earnings
($ millions) Standard Deviation
in Earnings
($ millions)   Treynor Pie Company + 1.0 $ 189 $ 8 $ 2.0   Gourmet restaurant + .4 63 7 1.4   Baby food company + .3 57 4 1.6   Nutritional products company .5 76 5 3.3

Explanation / Answer

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

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