
Essentials Of Investments
11th Edition
ISBN: 9781260013924
Author: Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher: Mcgraw-hill Education,
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Evaluate the following statement: Managers should not focus on the current stock value because doing so will lead to an overemphasis on the short term profits at the expense of long-term profits.
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- Managers often complain that the stock market is short-sighted and focused on accounting earnings. In your post, make a case to convince your manager that this view is either true or not true.arrow_forwardTB 13-80 Company X has a P/E ratio of 16 in year 2017. Company X has a P/E ratio of 16 in year 2017 and 16.5 in 2018. In 2018 its P/E ratio is 24. The best way to interpret these data is to conclude thatarrow_forwardIf the expected rate of return on a stock is less than the required rate of return, The stock is experiencing supernormal growth. The stock should not be bought. The company is probably not trying to maximize its stock price. The stock is a good buy. Dividends are not being declared.arrow_forward
- what happens if a company doesn't manage risk ?arrow_forwardInvestments in smaller company stock compared to investments in larger company stock are generally: A) more volatile because they are less liquid, have less stock issued and have less diversified sources of income. B) more volatile because they are less liquid, have less stock issued and have more diversified sources of income. C) less volatile because they are less liquid, have less stock issued and have less diversified sources of income. D) less volatile because they are less liquid, have less stock issued and have more diversified sources of income.arrow_forwardWhich of the following best describes why the predicted incremental earnings arising from a given decision are not sufficient in and of themselves to determine whether that decision is worthwhile? ... O A. They do not tell how the decision affects the firm's reported profits from an accounting perspective. O B. They are not easily predicted from historical financial statements of a firm and its competitors. O C. They do not show how the firm's earnings are expected to change as the result of a particular decision. O D. These earnings are not actual cash flows.arrow_forward
- Funding risk is the risk that a firm will not be able to meet its short-term financial obligations when due. Select one: True Falsearrow_forwardFinancial Leverage: a.can impact profitability. b.increases when stock is issued. c.is a sign of financial weakness. d.All of the above. e.None of the above.arrow_forward"Address the limitations of traditional methods such as CAPM (Capital Asset Pricing Model) andDiscounted Cash Flow Analysis in valuing a company's stock price in non - stationary marketconditions. Particularly, discuss the consistency of the beta coefficient in determining the cost ofcapital and the selection of the risk - free rate. Also, evaluate how these traditional models can orcannot integrate non-financial factors (e. g., company management, brand value, industry trends).Lastly, discuss the alternative models used in stock valuation and the advantages and disadvantagesof these models compared to traditional methods."arrow_forward
- If a firm plans to issue new stock, flotation costs (investment bankers' fees) should not be ignored. There are two approaches to use to account for flotation costs. The first approach is to add the sum of flotation costs for the debt, preferred, and common stock and add them to the initial investment cost. Because the investment cost is increased, the project's expected rate of return is reduced so it may not meet the firm's hurdle rate for acceptance of the project. The second approach involves adjusting the cost of common equity as follows: Cost of equity from new stock = r, D1 +8 Po(1-F) The difference between the flotation-adjusted cost of equity and the cost of equity calculated without the flotation adjustment represents the flotation cost adjustment. Quantitative Problem: Barton Industries expects next year's annual dividend, D1, to be $1.90 and it expects dividends to grow at a constant rate g = 4.3%. The firm's current common stock price, Po, is $25.00. If it needs to issue…arrow_forwardEmpirical evidence indicates that the returns to shareholders of the target firm vary significantly from the returns to the shareholders of the acquiring firm. Identify the shareholders that tend to realize the smaller return and provide some possible explanation for these low returns.arrow_forwardSuppose a public company compensates its risk averse managers with stock awards rather than stock options, and the company's stock price has fallen precipitously. In this setting, using stock awards will induce more risk taking by management versus the use of stock options. Question options: a) True b) Falsearrow_forward
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