Imagine you are the treasurer of a small manufacturing firm. Your firm is planning to go public (i.e., sell stock to investors for the first time). One unresolved question concerns the market’s required return on the stock. Given what you have learned, how do you think the required return will affect the market value of your firm’s stock? How would you go about estimating this rate?
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In a few sentences, answer the following question as completely as you can.
- Imagine you are the treasurer of a small manufacturing firm. Your firm is planning to go public (i.e., sell stock to investors for the first time). One unresolved question concerns the market’s required return on the stock. Given what you have learned, how do you think the required return will affect the market value of your firm’s stock?
How would you go about estimating this rate?
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- At a lunch with some business associates, you discuss the reason for the relationship between the economy and the stock market. One of your associates contends that she has heard that stock prices typically turn before the economy does. How would you explain this phenomenon?We can imagine the financial manager doing several things on behalf of the firm's stockholders. For example, the manager might: Make shareholders as wealthy as possible by investing in real assets. Modify the firm's investment plan to help shareholders achieve a particular time pattern of consumption. Choose high- or low-risk assets to match shareholders' risk preferences. Help balance shareholders' checkbooks. But in well-functioning capital markets, shareholders will vote for only one of these goals. Which one? Why?a) Return calculations For each of the investments shown in the table(Attached), calculate the rate of return earned over the unspecified time period. b) ETHICS PROBLEM Risk is a major concern of almost all investors. When shareholders invest their money in a firm, they expect managers to take risks with those funds. What do you think are the ethical limits that managers should observe when taking risks with other people’s money?
- You are the CFO of a profitable firm that is financially constrained. The stock market is currently going through a boom phase (assume this is a bubble). From what you have learned in this course, you know that the rational decision would be to issue new shares and use this income to pursue positive NPV projects. Before you make this decision, what is the most important variable that you would examine Assume you have information on all these variables. Select one: O a. Market Q O b. Fundamental Q O c. Elasticity of price demand for common shares O d. Cash SavingsWe can imagine the financial manager doing several things on behalf of the firm's stockholders. But in well-functioning capital markets, shareholders will vote for only one of these goals. Which one? Multiple Choice Modify the firm's investment plan to help shareholders achieve a particular time pattern of consumption. Help balance shareholders' checkbooks. Choose high- or low-risk assets to match shareholders' risk preferences. Make shareholders as wealthy as possible by investing in real assets.Analysts and investors often use return on equity (ROE) to compare profitability of a company with other firms in the industry. ROE is considered a very important measure, and managers strive to make the company’s ROE numbers look good. If a firm takes steps that increase its expected future ROE, its stock price will increase. Based on your understanding of the uses and limitations of ROE, a rational investor is likely to prefer an investment option that has: High ROE and high risk High ROE and low risk
- Analysts and investors often use return on equity (ROE) to compare profitability of a company with other firms in the industry. ROE is considered a very important measure, and managers strive to make the company's ROE numbers look good. If a firm takes steps that increase its expected future ROE, its stock price will Based on your understanding of the uses and limitations of ROE, a rational investor is likely to prefer an investment option that has: O High ROE and high risk O High ROE and low risk increase. Suppose you are trying to decide whether to invest in a company that generates a high expected ROE, and you want to conduct further analysis on the company's performance. If you wanted to conduct a comparative analysis for the current year, you would: O Compare the firm's financial ratios with other firms in the industry for the current year Compare the firm's financial ratios for the current year with its ratios in previous years You decide also to conduct a qualitative analysis…Suppose you work for an investment bank where you are assigned to track EchoStar's stock and create reports that brokers can distribute to investors. Investors can then use these reports and decide whether they want to invest in a particular stock. In this scenario, you are working as a _____ analyst.You are the founder of IGRO, an Internet firm that delivers groceries. a. Give an example of an idiosyncratic risk and a systematic risk your company faces. b. As founder of the company, you own a significant portion of the firm, and your personal wealth is highly concentrated in IGRO shares. What are the risks you face, and how should you try to reduce them? c. Given your answer to part b, do you think it is a good idea for lower level employees to have large amounts of stock in their savings when that stock is issued by their employer? Is there an upside, as well as a downside?
- Which of the following are consistent with the efficient market hypothesis? Check all that apply. Changes in stock prices can be accurately predicted by investors. At the market price, the number of people who believe the stock is overvalued exactly equals the number of people who think the stock is undervalued. A positive news release about a company will increase the value and stock price for that firm. Some investors cite the existence of anomalies—observations that do not fit the model—as evidence that stock markets are not efficient. Which of the following are such anomalies? Check all that apply. The best time to sell a stock is late on Wednesday or Friday, whereas the best time to buy a stock is late on Tuesday or Thursday. The movement of stock prices of companies over time is the same as the changes in their earnings. High returns to a stock in one period are associated with even higher returns in a later period. There is a…Provide an explanation of the impact of external factors on the financial position of your selected company. Use the Interest Rates Spreadsheet to demonstrate the implications of interest rate changes on at least one. Specifically, the following critical elements must be addressed: Macroeconomic Items: The CEO of your selected company is convinced that financial analysis should hinge only on what is happening internally within the company. Convince the CEO otherwise based on the following: Analyze the implications of interest rate changes on any of your calculations. Support your claims. Determine how an issue in the overall stock market—negative or positive—might impact the company’s stock valuation numbers, other financial variables, or its overall portfolio management. Support your response with evidence through research, references, and citations. Analyze the impact of any external factor of PepsiCo. discussed throughout the course on the company’s financial position.…What are some of the risks an investor would face when investing in a stock? In addition to the business risk coming from the type of business environment that your company operates in, what additional risk would be of concern to an investor? The company might be mismanaged and do poorly or go out of business. The company's stock market return might be wildly unpredictable as the operating performance might be unstable. The company's competitors might do a better job and take market share away? The list goes on and on... What risks would you face if you bought 100 shares of Tesla?