Essentials Of Investments
11th Edition
ISBN: 9781260013924
Author: Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher: Mcgraw-hill Education,
expand_more
expand_more
format_list_bulleted
Videos
Textbook Question
Chapter 12, Problem 17PS
Consider two firms producing smartphones. One uses a highly automated robotics process while the other uses human workers on an assembly line and pays overtime when there is heavy production demand.
a. Winch firm will have higher profits in a recession?
b. In a boom?
c. Which firm’s stock will have a higher beta?
Expert Solution & Answer
Want to see the full answer?
Check out a sample textbook solution
Students have asked these similar questions
Consider an economy with two types of companies, S and I. The profits of companies S always move together, but the profits of companies I move independently of each other. For both firms, there is a 70% probability that the firm's return is 30%, and a 30% probability that the return is -30%.
The standard deviation of an individual company's return is closest to the value:
Choose one:
A.23.0%
B.5.25%
C.15.0%
D.10.0%
Only typed answer
Consider an economy with two types of firms, S and I. S firms always move together,
but I firms move independently of each other. For both types of firms there is a 40%
probability that the firm will have a 20% return and a 60% probability that the firm
will have a -30% return.
The standard deviation for the return on an individual firm is closest to
A) -10.00%
B) 24.49%
C) 9.80%
D) 12.25%
7. More on ratio analysis
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, which of the following projects will a manager likely choose if his or her bonus is
solely based on the ROE of the next project?
O Project Y, with 40% ROE and a small investment, generating low expected cash flows
O Project X, with 35% ROE and a large investment, generating high expected cash flows
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 trend analysis, you would:
O Analyze the firm's financial ratios over time
Compare…
Chapter 12 Solutions
Essentials Of Investments
Ch. 12 - Prob. 1PSCh. 12 - Why does it make intuitive sense that the slope of...Ch. 12 - Which one of the following firms would be...Ch. 12 - Prob. 4PSCh. 12 - How do each of the following affect the...Ch. 12 - The present value of a firm’s projected cash flows...Ch. 12 - Prob. 7PSCh. 12 - Which of the following is consistent with a...Ch. 12 - Which of the following is not a governmental...Ch. 12 - Prob. 10PS
Ch. 12 - Prob. 11PSCh. 12 - ATech has fixed costs of 7 million and profits of...Ch. 12 - Choose an industry and identify the factors that...Ch. 12 - What monetary and fiscal policies might be...Ch. 12 - If you believe the U.S. dollar is about to...Ch. 12 - Unlike other investors, you believe the Fed is...Ch. 12 - Consider two firms producing smartphones. One uses...Ch. 12 - Prob. 18PSCh. 12 - Prob. 19PSCh. 12 - Prob. 20PSCh. 12 - In which stage of the industry life cycle would...Ch. 12 - Prob. 22PSCh. 12 - Why do you think the change in the index of labor...Ch. 12 - You have 5,000 to invest for the next year and are...Ch. 12 - General Weedkillers dominates the chemical weed...Ch. 12 - Prob. 26PSCh. 12 - Prob. 27PSCh. 12 - Prob. 28PSCh. 12 - Prob. 29PSCh. 12 - Prob. 30PSCh. 12 - Prob. 31PSCh. 12 - Prob. 32PSCh. 12 - Prob. 33CCh. 12 - Prob. 1CPCh. 12 - Prob. 2CPCh. 12 - Prob. 3CPCh. 12 - Prob. 4CPCh. 12 - Prob. 5CPCh. 12 - Prob. 1WM
Knowledge Booster
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, finance and related others by exploring similar questions and additional content below.Similar questions
- 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. A) If a firm takes steps that increase its expected future ROE, its stock price will increase. B) Based on your understanding of the uses and limitations of ROE, which of the following projects will a manager likely choose if his or her bonus is solely based on the ROE of the next project? Project Y, with 40% ROE and a small investment, generating low expected cash flows Project X, with 35% ROE and a large investment, generating high expected cash flows C) 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: Compare the…arrow_forwardCeteris paribus, current financial market returns will increase as _____. Group of answer choices a. the uncertainty about the productivity of capital goods increases and people become more risk averse b. the uncertainty about the productivity of capital goods increases and people become less risk averse c. the uncertainty about the productivity of capital goods decreases and people become more risk averse d. the uncertainty about the productivity of capital goods decreases and people become less risk aversearrow_forwardSuppose that as the economy moves through a business cycle, risk premiums also change. For example, in a recession, when people are concerned about their jobs, risk tolerance might be lower and risk premiums might be higher. In a booming economy, tolerance for risk might be higher and premiums lower.a. Would a predictably shifting risk premium such as described here be a violation of the efficient market hypothesis?b. How might a cycle of increasing and decreasing risk premiums create an appearance that stock prices “overreact,” first falling excessively and then seeming to recover?arrow_forward
- •Suppose we are trying to value the company Inactivision, a video game developer that does not pay dividends and has negative earnings but it growing. If the appropriate industry price to sales ratio for this type of company is 20 and you predict sales to be $3 per share for the coming year, then the forecasted stock price for a year from now, or target price, is the following: Respuesta:arrow_forwardA manager believes his firm will earn a return of 16.35 percent next year. His firm has a beta of 1.13, the expected return on the market is 13.90 percent, and the risk-free rate is 7.90 percent.Compute the return the firm should earn given its level of risk. (Round your answer to 2 decimal places.) Required Return: ___.__% Determine whether the manager is saying the firm is undervalued or overvalued. a.) undervalued b.) overvaluedarrow_forwardces A manager believes his firm will earn a return of 23.80 percent next year. His firm has a beta of 1.69, the expected return on the market is 16.30 percent, and the risk-free rate is 6.30 percent. Compute the return the firm should earn given its level of risk. (Round your answer to 2 decimal places.) Required return Determine whether the manager is saying the firm is undervalued or overvalued.. undervalued % overvaluedarrow_forward
- Ma4. Hello, Please analyze this firm's performance if the revenue is increasing or decreasing compared to the industry average or if the profitability is stable or rising. Please include if the company needs to create or capture value or if they are creating or capturing value.arrow_forwardATEch has fixed costs of $8 million and profits of $5 million. Its competitor ZTech is roughly the same size and this year earned the same profits, $5 million. But it operates with fixed costs of $7 million and lower variable costs. what is the degree of operating leverage for each company? which firm would you expect to have profits that are more sensitive to the state of the economy? which firm would you expect to have the higher stock market beta?arrow_forwardSandra is considering investing in a company's stock and is aware that the return on that investment is particularly sensitive to how the economy is performing. Her analysis suggests that four states of the economy can affect the return on the investment. Probability Return Boom 0.4 25.00% Good 0.2 15.00% Level 0.1 10.00% Slump 0.3 -5.00% Use the table of returns and probabilities above to determine the expected return on Sandra’s investment? (Round answer to 3 decimal places, e.g. 0.076.) Expected returnarrow_forward
- Which of the following is an example of unsystematic risk? XYZ corp stock price fell when the news of a drop in GDP was released. When the new employment numbers showed the economy is creating more jobs, the stock market rose. ABC Manufacturing stock price falls upon the announcement that they have a parts shortage from their suppliers When news of strong consumer demand was released, proctor and gamble stock price rose The stock market rose at the announcement of higher GDP numbersarrow_forwardHow many statements below about operating leverage are correct? 1. Operating leverage measures the sensitivity of a firm's operating income to changes in the firm's level of sales. 2. Automated operations results to greater operating leverage for the firm than mechanical operations. 3. An operațing leverage of 5 means that a firm's operating income will increase by P0.5 for every P1 increase in sales. 4. Operating leverage will decrease as the firm's margin of safety increases. 5. The higher the firm's operating leverage, the higher is its income potential but at the same time, the higher the risk of incurring loss. 1 2 4arrow_forwardThere are two states of the world tomorrow. With probability 1/6, the economy will be good. With probability 5/6, the economy will be bad. IBM stock return will be 15% if the economy is good, 1% if the economy is bad. Dell stock return will be 25% if the economy is good, −10% if the economy is bad. You own $1,000 of IBM and $3,000 of Dell. What is the expected return of your portfolio? What are the covariance and correlation of IBM and Dell stock returns? What is the variance of your portfolio? Please answer fast i give you upvote.arrow_forward
arrow_back_ios
SEE MORE QUESTIONS
arrow_forward_ios
Recommended textbooks for you
Intermediate Financial Management (MindTap Course...FinanceISBN:9781337395083Author:Eugene F. Brigham, Phillip R. DavesPublisher:Cengage Learning
Financial Reporting, Financial Statement Analysis...FinanceISBN:9781285190907Author:James M. Wahlen, Stephen P. Baginski, Mark BradshawPublisher:Cengage Learning
EBK CONTEMPORARY FINANCIAL MANAGEMENTFinanceISBN:9781337514835Author:MOYERPublisher:CENGAGE LEARNING - CONSIGNMENT
Managerial AccountingAccountingISBN:9781337912020Author:Carl Warren, Ph.d. Cma William B. TaylerPublisher:South-Western College Pub
Intermediate Financial Management (MindTap Course...
Finance
ISBN:9781337395083
Author:Eugene F. Brigham, Phillip R. Daves
Publisher:Cengage Learning
Financial Reporting, Financial Statement Analysis...
Finance
ISBN:9781285190907
Author:James M. Wahlen, Stephen P. Baginski, Mark Bradshaw
Publisher:Cengage Learning
EBK CONTEMPORARY FINANCIAL MANAGEMENT
Finance
ISBN:9781337514835
Author:MOYER
Publisher:CENGAGE LEARNING - CONSIGNMENT
Managerial Accounting
Accounting
ISBN:9781337912020
Author:Carl Warren, Ph.d. Cma William B. Tayler
Publisher:South-Western College Pub
Enterprise Resource Planning (ERP); Author: tutor2u;https://www.youtube.com/watch?v=A98X_bvX2QA;License: Standard Youtube License