Question

GB Scientific, Inc. is a medical equipment manufacturer. It is planning to diversify it business and...

GB Scientific, Inc. is a medical equipment manufacturer. It is planning to diversify it business and lower its risk. The following four companies are the targets of GB Scientific:

Company

Correlation

Sales

Average

Standard

with GBS

($ Million)

Earnings

Deviation

Men's Wear

-0.6

$150

$10

$9

J&B Medical

0.9

$150

$10

$1

AM.com

0

$200

$10

$5

G&P Paper

0.5

$150

$20

$6

If each of these companies can be purchased at the same multiple of earnings, which company should GBS buy?

A.

Men’s Wear, because it has a negative correlation with GBS.

B.

J&B Medical, because it has the lowest standard deviation.

C.

AM.com, because it has the highest sale.

D.

G&P Paper, because it has the highest average earning.

0 0
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Answer #1

Correct answer is option A : Men’s Wear, because it has a negative correlation with GBS.

With negative correlation firm will be able to diversify better than the any other options.

therefore correct answer is option A.

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