A firm’s value depends on the positive net income generated in the past. True False A firm’s value depends on the firm’s ability to generate positive cash flows now and in the future True False When determining the value of a firm, which of the following statements is true? • Inversters are risk neutral. Other things equal they prefer to pay more stocks that are less risky and have uncertain cash flows • Investers love risk. Other things equal they prefer to pay more for stocks that are more risky and have uncertain cash flows.
Why? Financial managers have traditionally been more risk-averse, and would likely choose Investment X because it provides the company’s normal increase in return and has increased risk. P5-4 - Risk analysis Solar Designs is considering an investment in an expanded product line. Two possible types of expansion are being considered. After investigating the possible outcomes, the company made the estimates shown in the following table: | |
A rising ROE suggests that a company is increasing its ability to generate profit without needing as much capital. It also indicates how well a company's management is deploying the shareholders' capital. In other words, the higher the ROE the better. Falling ROE is usually a problem. CAGR: Operating income, % Operating income (EBIT) measures a company's earning power from ongoing operations and it largely used by investor because it excludes the effects of different capital structures and tax rates used in different companies.
Discount rate = 11%. The Net Present Value (NPV) of an investment proposal is equal to the present value of its annual free cash flows less the investment’s initial outlay (Keown, A. J., Martin, J. D., & Petty, J. W. (2014). The rule here is that our company will accept projects with a net present value greater than zero, and decline the ones with a net present value that is less than zero. The greater the net present value, the more appropriate the investment is. Based on that, Corporation B is desirable to Corporation A as it has a greater net present value.
By using this method the income statement shows a higher income due to the lower value of the cost of goods sold. The balance sheet would also show a higher value for the inventory that is on hand. ABC Company wanted to show that their expenses were lower and their income was higher than what it actually was, resulting in a higher retained earnings value at the end of the period. To the public, it would look as though the company is thriving and paying out larger dividends to stockholders. Stockholders may assume when reading the financial statements that they would be receiving a higher return each month or quarter when in reality that would not be the case especially if they are planning on switching to LIFO.
in 1978 and proposed that profit was less important than fairness in the relationship. According to Hatfield (2011) “According to Equity theory, people feel most comfortable when they are getting exactly what they deserve from their relationships—no more and certainly no less” Exchange Theory is more concerned with under-benefit as a disadvantage but Equity Theory places a greater emphasis on both under-benefit and over-benefit. Under-benefits are likely to provoke a sense of anger and resentment and over-benefits are likely to provoke a sense of guilt. The Equity model suggests that a person would be driven to restore the equity within an unbalanced relationship by either reducing their input or increasing their outputs and it is the inability to reach balance that can lead to the breaking of the relationship. Investment theory focusses on the extent to which commitment is determined by investment in a relationship rather than solely satisfaction or reward.
In other words, the return on equity ratio shows how much profit each dollar of common stockholders' equity generates. Based on Nike, Inc.’s ROA of 14.4%, it can be determined that Nike, Inc. is may be more efficient in managing the utilization of its asset base versus Under Armour, whose ROA is 11.1%. The higher the ratio the better profit gain the company produces. Financial Leverage Percentage | 2012 | Under Armour | 4.7% | Nike, Inc. | 7% | The financial leverage percentage measures the advantage or disadvantage that occurs when a company’s return on equity differs from its return on assets. Under Armour’s financial leverage ratio (4.7%) is lower because it utilizes less debt in its capital structure and it is not earning as high on its assets, compared to Nike, Inc. (7%).
It does so, by showing that the higher the employee's self-esteem the more profit is made for the company which can also show that employees are more productive. 3. Are there other possible explanations for the data in Figure 1 that would not necessarily support the idea that employees’ self-esteem affects companies’ profits? If so, explain what they are. Provide three alternative explanations.
et powerECO204: Homework Assignment 3 1. True, False, Uncertain a. A firm that enjoys economic rents earns higher economic profits than other firms without the economic rents. b. Relative to the perfectly competitive equilibrium, the equilibrium outcome for a market dominated by a monopsonist will be higher prices and lower levels of good demanded.
When the government prevents prices from adjusting naturally to supply and demand, efficiency is improved in the economy. ANSWER: F TYPE: T KEY1: D SECTION: 2 OBJECTIVE: 7 RANDOM: Y [cxviii]. A market economy cannot possibly produce a socially desirable outcome because individuals are motivated by their own selfish interests. ANSWER: F TYPE: T KEY1: D SECTION: 2 OBJECTIVE: 7 RANDOM: Y [cxix]. While the invisible hand cannot guarantee efficiency, it is better at guaranteeing equity.