Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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Transcribed Image Text:12. Impact of Economic Growth. Explain how economic growth affects the valuation of
a stock.
ANS: The firm's value should reflect the present value of its future cash flows.
Because earnings are a primary component of corporate cash flows, many investors use
forecasted earnings to determine whether a firm's stock is over- or undervalued.
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