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?

What are the lessons for the lessons for investors and corporate managers with respect to market efficiency (check all that apply)? Group of answer choices If stocks are fairly priced, then investors can expect future cash flows that fairly compensate them for the risk of that investment You get paid (in the form of expected returns) for taking on risk If markets are efficient then relevant information quickly gets incorporated into prices Treasury departments of industrial firms should try to outguess the markets in managing their corporate cash

A friend who knows you study accounting approaches you to discuss share market investment strategies. They believe deciding which shares to invest in should be based solely on understanding the business model and reading analyst forecasts regarding the company. Is this strategy sound? Why or why not? What other approaches or tools would you recommend to assist in making investment decisions? Discuss.

You are the CPA for a large firm that is having a rough year and may not make analysts’ forecasts. The firm is considering changing from LIFO to FIFO, as that will increase income and may put them at the point of making the analysts’ forecasts. Do you think that they should make the change? Why or why not

You have some funds that you would like to invest. Do some internet research to find two publicly traded companies in the same industry and compare their earnings per share. Would the earnings per share reported by each company influence your decision in selecting which company to invest in?

If a company’s board of directors wants management to  maximize shareholder wealth, should the CEO’s compensation be set as a fixed dollar amount, or should the compensation depend on how well the firm performs? If it is to be based on performance, how should performance is measured? Would it be easier to measure performance by the growth rate in reported profits or the growth rate in the stock’s intrinsic value? Which would be the better performance measure? Why?

A friend of yours owns a company that is about to get a large government contract.  He tells you this inside information about the contract and also mentions that it should make the company's stock price increase dramatically.  If you invest based on this inside information, then you are implicitly saying that stock markets are inefficient in which context?   Question 5 options:   weak form efficient market theory   semi-strong form efficient market theory   strong form efficient market theory

he CFO of Baldwin Corporation, Jeff Warren has decided to invest some money in the financial market to diversify the risks of business operations and increase rate of return. He has been reading corporate finance books and journal articles to enhance his knowledge on risk/return relationships, capital asset pricing model (CAPM), cost of capital and valuation. On risk/return relationship, Jeff has learnt that there is a positive relationship between risk and return. This implies that the higher the risk, the greater the expected return on an investment. This relationship is clearly explained by the capital asset pricing model in this equation: RE = RF + β x (RM – RF) where RE = expected return of the security, RF = the risk-free rate, β = Beta of the security, RM = the expected return on the market, and (RM – RF) represents the difference between the expected return on the market and the risk-free rate. According to the CAPM, the expected return of any security depends on its risk…

You are an investment banker who has two meetings today. Each of these meetings entails clients requesting your services in determining the optimal capital structure for their firms. For each of the cases below, describe whether you would recommend that the firm choose leverage which is less than, about the same as, or greater than the average across all firms. Explain your reasoning fully. a) Your morning meeting is with the CEO of a drug company. This firm makes a unique product that historically generated losses that they still have on their books. But now they have high growth projects coming consistently in the future. Investors are a little concerned on which of the many drug options the firm could choose. The firm has $100 Million in debt and is trading at a MTB multiple of 5X with their market value of equity at $500 Million.   b) Your afternoon meeting is with the CEO of a glass producer. They are a mature cash cow with high stable profits. The glass equipment can be used by…

Pretend for a moment you owned a business but had no cash and your business was about to close because of no operating funds. You approach a Venture Capitalist and an Angel Investor, and both are willing to provide you with the necessary financing; however, you can only go with one. First part of the question is: Who would you choose and why? Second part of the question is: Where does Risk and Return fit in with both Venture Capitalists and Angot In