Corporate Finance
12th Edition
ISBN: 9781259918940
Author: Ross, Stephen A.
Publisher: Mcgraw-hill Education,
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Textbook Question
Chapter 10, Problem 1CQ
Investment Selection Given that Madrigal Pharmaceuticals was up by about 516 percent for 2017, why didn’t all investors hold Madrigal?
Expert Solution & Answer
Summary Introduction
To discuss: The reason for not holding stocks of Company M even after knowing that Company M was up by 516 percent in 2017.
Introduction: Investors can earn returns from any investment in stocks in two forms, i.e., by capital gains due to an increase in stock value in the market or by dividends distributed by the company at a specified time period.
Answer to Problem 1CQ
The reason could be high-risk involvement due to high volatility.
Explanation of Solution
Given Information: Company M was up by 516 percent in 2017 and Company S was also up by 438 percent of gains. But there were some companies whose share prices dropped.
Investors can invest in any stock depending on the company’s previous performance along with the potential of earning returns and the risk associated with the investment. When company M’s shares were up by 516 percent in 2017 many investors were happy but many people would have wished to invest in Company M at that time. But even after knowing that share was up in 2017 many investors do not hold shares of company M due to high-risk involvement. The increase of 516 percent shows that the volatility of the stock price is high. Investors holding shares of Company M may bear huge profits but it is also likely that investors of Company M may incur huge losses in the future.
Therefore, not all investors are ready to take high risks.
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Investment Selection | L04] Given that Hertz was down by 88 percent in the first half of 2020, why did some investors hold the stock? Why didn't they sell out before the price declined so sharply? Show work on excel
In the year 2016, Al-Jazeerah and Company's shares traded at $ 30 per share; this is a 25%the decline from its peak. Forecasted earning per share for 2016 & 2017 were $3.05 & $3.2 . Adividend of $ 0.5 per share was indicated for the fiscal year 2017.(a) Calculate AAA's normal forward P/E and the forward P/E it traded in 2016.Use a required rate of return of 10%. (b) Calculate the intrinsic P/E implied by the analyst' forecasts with the assumption thatthere will be no abnormal earning growth after 2018.(c) Explain why an analyst prefers a leading P/E ratio over a trailing P/E ratio? (d) Explain why a normal forward P/E ratio and a normal trailing P/E ratio always differ by 1.(e) Explain why Interest payment should not be part of cash flow from operations. (f) Explain why might a firm trade at a price to book ratio greater than 1?
Suppose a firm has had the following historic sales figures.
Year:
2016
2017
2018
2019
2020
Sales
$1,530,000
$1,720,000
$1,560,000
$2,100,000
$1,850,000
What would be the forecast for next year’s sales using FORECAST.ETS to estimate a trend?
Note: Round your answer to the nearest whole dollar.
Chapter 10 Solutions
Corporate Finance
Ch. 10 - Investment Selection Given that Madrigal...Ch. 10 - Investment Selection Given that Sears was down by...Ch. 10 - Risk and Return We have seen that over long...Ch. 10 - Prob. 4CQCh. 10 - Effects of Inflation Look at Table 10.1 and Figure...Ch. 10 - Risk Premiums Is it possible for the risk premium...Ch. 10 - Prob. 7CQCh. 10 - Returns Two years ago, the Lake Minerals and Small...Ch. 10 - Prob. 9CQCh. 10 - Historical Returns The historical asset class...
Ch. 10 - Prob. 1QAPCh. 10 - Calculating Yields In Problem 1, what was the...Ch. 10 - Calculating Returns Rework Problems 1 and 2...Ch. 10 - Prob. 4QAPCh. 10 - Prob. 5QAPCh. 10 - Prob. 6QAPCh. 10 - Prob. 7QAPCh. 10 - Prob. 8QAPCh. 10 - Prob. 9QAPCh. 10 - Calculating Real Returns and Risk Premiums In...Ch. 10 - Prob. 11QAPCh. 10 - Prob. 12QAPCh. 10 - Prob. 13QAPCh. 10 - Prob. 14QAPCh. 10 - Calculating Returns You bought a stock three...Ch. 10 - Prob. 16QAPCh. 10 - Prob. 17QAPCh. 10 - Prob. 18QAPCh. 10 - Prob. 19QAPCh. 10 - Prob. 20QAPCh. 10 - Prob. 21QAPCh. 10 - Prob. 22QAPCh. 10 - Prob. 23QAPCh. 10 - Using Return Distributions Suppose the returns on...Ch. 10 - Prob. 25QAPCh. 10 - Prob. 26QAPCh. 10 - Using Probability Distributions Suppose the...Ch. 10 - Prob. 28QAPCh. 10 - Prob. 1MCCh. 10 - Prob. 2MCCh. 10 - Assume you decide you should invest at least part...Ch. 10 - Prob. 4MCCh. 10 - Prob. 5MCCh. 10 - What portfolio allocation would you choose? Why?...
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