Question
Asked Feb 14, 2019
4353 views

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.

check_circle

Expert Answer

star
star
star
star
star
1 Rating
Step 1

The statement is false.

Explanation: Stock price fundamentally is based on the all the expected cash flows of the firm be it in the short run, medium run or long run. A share price today is nothing but present value of all the future cashflows the firm will generate.

Step 2

Such cash flows are discounted at an appropriate discount rate that reflects the risk of the firm. Hence, a manager focussed on maintaining or increasing the stock's price will automatically pay att...

Want to see the full answer?

See Solution

Check out a sample Q&A here.

Want to see this answer and more?

Solutions are written by subject experts who are available 24/7. Questions are typically answered within 1 hour.*

See Solution
*Response times may vary by subject and question.
Tagged in

Business

Finance

Related Finance Q&A

Find answers to questions asked by student like you

Show more Q&A add
question_answer

Q: Barbie is going to borrow $5,000 to help write a book.  The loan is for one year and the money can e...

A: Option 1: 1 year loan borrowed at prime rate = 11%Effective interest cost = 11%Option 2: 1 year loan...

question_answer

Q: Use the compound interest formula A = P(1 + i)n to find the indicated values A = $6,000; i = 0.03; n...

A: Compounded Interest:           It is the method for computing interest at the initial amount of prin...

question_answer

Q: Inzaghi Company recently hired you as a consultant to estimate the company’s WACC. You have obtained...

A: WACC is the weighted average cost of capital. The same can be calculated as:WACC = Wd x Kd x (1 - T)...

question_answer

Q: What is the future value of the following set of cash flows 4 years from now? Assume interest rate 6...

A: Horizon is n = 4 years from now.FVn = The future value at the end of period n, of a cash flow occuri...

question_answer

Q: If the volatility of a stock is .33, find the standard deviation of: (see the attachment for the rem...

A: Recall the Black Scholes model derivation.Log of the stock price is normally distributed.The expecte...

question_answer

Q: Here is the problem: Famas's LLamas has a weighted average cost of capital of  7.9%. The company's c...

A: Calculation of Weight of Debt:The weight of debt is calculated using the WACC formula, where the wei...

question_answer

Q: The four different bond ratings below have a yeild to maturity for 10 year bonds. Baa 9.40% Ba1 9.60...

A: The bonds of Parrot Corp. were rated as Baa  and issued at par a few weeks ago. The yiled correspond...

question_answer

Q: Global Products plans to issue long-term bonds to raise funds to finance its growth. The company has...

A: a)Calculation of Coupon Rate on the New Bond Issue:

question_answer

Q: Save Help Subr Exit Check my work Marsha Jones has bought a used Mercedes horse transporter for her ...

A: Calculation of NPV of the Investment:The renting is done for every other week which means there are ...