Automotive industry has been generally considered to be at the maturity stage of the industry life cycle. Which of the following observations is consistent with this argument? Many firms pay zero dividends to shareholders Industry growth rate is similar to the growth rate of the overall economy Product lineup continues expanding with innovations High profit margins attract new entrants Which of the followings is correct about the capital market line (CML)? Group of answer choices It can be tangent to the investment opportunity set of all risky assets Its Y-intercept is the Sharpe ratio for the market portfolio It is going through the minimum-variance portfolio Its slope is the expected return on the market portfolio An investor is analyzing two stocks: S1 and S2. The P/E ratio of S1 is 30, and the P/E ratio of S2 is 170. The investor concludes that S2 is relatively overvalued due to its substantially higher P/E ratio. Which of the following information can make this conclusion more convincing? Group of answer choices S1 and S2 have a similar growth potential S1 and S2 have a similar price per share S1 and S2 have a similar dividend per share S1 and S2 have a similar earnings per share
Cost of Capital
Shareholders and investors who invest into the capital of the firm desire to have a suitable return on their investment funding. The cost of capital reflects what shareholders expect. It is a discount rate for converting expected cash flow into present cash flow.
Capital Structure
Capital structure is the combination of debt and equity employed by an organization in order to take care of its operations. It is an important concept in corporate finance and is expressed in the form of a debt-equity ratio.
Weighted Average Cost of Capital
The Weighted Average Cost of Capital is a tool used for calculating the cost of capital for a firm wherein proportional weightage is assigned to each category of capital. It can also be defined as the average amount that a firm needs to pay its stakeholders and for its security to finance the assets. The most commonly used sources of capital include common stocks, bonds, long-term debts, etc. The increase in weighted average cost of capital is an indicator of a decrease in the valuation of a firm and an increase in its risk.
Automotive industry has been generally considered to be at the maturity stage of the industry life cycle. Which of the following observations is consistent with this argument?
Many firms pay zero dividends to shareholders
Industry growth rate is similar to the growth rate of the overall economy
Product lineup continues expanding with innovations
High profit margins attract new entrants
An investor is analyzing two stocks: S1 and S2. The P/E ratio of S1 is 30, and the P/E ratio of S2 is 170. The investor concludes that S2 is relatively overvalued due to its substantially higher P/E ratio. Which of the following information can make this conclusion more convincing?
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