Question
Asked Oct 22, 2019
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 Managers should not focus on the current stock value because doing so will lead to an overemphasis on short-term profits at the expense of long-term profits.

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Expert Answer

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 focused on maintaining or increasing the stock\'s price will automatically pay attention to all t...

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