Stock Valuation and Risk

The weekly performance of IBM stock presented a contestant growth. One highlight of the falling of stock price in the 6th week in the investment period was when IBM presented the 3rd quarter financial report. The investors weren’t satisfied with the profit report which they expected to be better especially when other IT companies were doing well in the 3rd quarter. One mistake I made was that I didn’t follow closely to the financial report of the company; therefore, I missed the peak of the stock price. From this experience, I learned that financial reports and current news are important indicators of the stock price. By following closely to the current event and analyzing the financial report, investors can maximize the profit and also become more familiar to the market.

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Based on your financial review, determine the risk level of the company from your investor’s point of view. Indicate key strategies that you may use in order to minimize these perceived risks.

2) Why in general do financial managers make financial decisions in a corporation, rather than the owners making

Prior to the enforcement of Regulation Fair Disclosure (FD), many public companies are revealing important nonpublic information to institutional investors or financial analysts, before disclose such information to the public. When this happened, those people who gain insight information can take advantage of others by buying or selling shares of the company beforehand. As a result, on October 23, 2000, the Securities and Exchange Commission (SEC) introduced the enforcement of Regulation Fair Disclosure (FD) to prevent the selective disclosure of information by publicly traded companies, which requires public companies to disclose material information as releases to financial analysts or others to the public at the same time.

5. (TCO G) Based on the corporate valuation model, Bernile Inc.'s value of operations is $750 million. Its balance sheet shows $50 million of short-term investments that are unrelated to operations, $100 million of accounts payable, $100 million of notes payable, $200 million of long-term debt, $40 million of common stock (par plus paid-in-capital), and $160 million of retained earnings. What is the best estimate for the firm's value of equity, in millions? a. $429

Brandt Cornell’s paper “Is the response of analyst to information consistent with fundamental valuation?” reveals that analyst recommendations are pro cyclical. As bad news arrives and the underlying price of the firm’s stock goes down , analyst downgrade company , the opposite effect arises when good news arrives. As Cornell

Corporate annual reports are important research tools that enable investors to keep current on the

Equity Analysts monitor trends in specific industries, initiate and supervise research on companies in those sectors, recommend what stocks investors should buy or sell and provide reliable research that backs up those recommendations. A typical Equity Analyst would manage a portfolio of equities and provide stock recommendations for the industry covered. The job

the median and mean multiple of EBITDA (Appendix II, table 4). Titman and Martin (2007, p.228) indicated that the most popular approach used to estimate a firm’s enterprise value involves the use of a multiple of EBITDA. Therefore, compared to the $9.4 billion bid for PacifiCorp, it can be concluded that the bid is “fair”.

e. Suppose you created a two-stock portfolio by investing $50,000 in Alta Industries and $50,000 in Repo Men. (1) Calculate the expected return, the standard deviation, and the coefficient of variation for this portfolio and fill in the appropriate blanks in the table. (2) How does the risk of this two-stock portfolio compare with the risk of the individual stocks if they were held in isolation?

We added the market risk premium of 6% to the 4.60% because 6% is the rate that investors want above the risk free rate due to the risk of the investment. This equals 10.6% which is then multiplied by the beta of the company of 1.1. Beta is a measure of the stock’s volatility in relation to the market. A beta of 1.1 means that Worldwide Paper Company has slightly higher volatility than the market does. The total cost of equity then calculates to equal 11.2%. This tells us that given the risk taken in investing in the company, a shareholder should expect an 11.2% return.

3.3 Calculating the costs of equity by the earnings capitalization ratio, and its advantages & disadvantages i. Calculation (based on EXIHIBIT 1&4) According to the earnings capitalization model, we have cost of equity = E1 / P0 = 2.16 / 42.09 = 5.13%

The job of an investment analyst in a banking firm such as Goldman Sach and JPMorgan is to oversee whether or not an investment made by customers will bear fruits, but in order to do so, one must be skillful either in accounting or finance. A clear understanding in one of those majors is necessary because an investment banking analyst will be dealing with a bunch of financial research in stock and bond market and also in companies. Thus, providing information for the customers to help their decision on investments. Even though it is a tough job that requires professionalism and a lot of diverse skills, it is a job that is worth it since it has high payments and it provide a lot of benefits. In other words, investment banking

The methods we used to valuate an appropriate stock price are the P/E ratio and the discounted cash flow.