(a)
Case summary:
A Researcher report indicates that expansion strategy will lead to higher profit which also impact on the stock prices of the Universal auto.
To construct:
- Business life cycle approach
- Evaluation of recommendation
Introduction:
For long term, investors hardly rely on the business life cycle approach but for short term, investors can gain value by observing the trends of the business. For this, investors trace the growth and profits which help investor to state the economy.
(b)
Case summary:
A Researcher report indicates that expansion strategy will lead to higher profit which also impact on the stock prices of the Universal auto.
To construct:
- Business life cycle approach
- Evaluation of recommendation
Introduction:
For long term, investors hardly rely on the business life cycle approach but for short term, investors can gain value by observing the trends of the business. For this, investors trace the growth and profits which help investor to state the economy.
Want to see the full answer?
Check out a sample textbook solutionChapter 17 Solutions
INVESTMENTS(LL)W/CONNECT
- Which of the following statements are not true Select one: a. Profitability Index is a discounted technique b. Capitalisation are the total securities issued by a company c. Cash flows occurs over a series of years in capital budgeting decisions d. Some investment decisions are irreversible e. Borrowing is cheap compared to equityarrow_forwardGive typing answer with explanation and conclusionarrow_forwardWhich of the following statements is most correct? (Hint: Work Problem 4-16 before answering 4-17, and consider the solution setup for 4-16, as you think about 4-17.) a. If a firm's expected basic earning power (BEP) is constant for all of its assets and exceeds the interest rate on its debt, then adding assets and financing them with debt will raise the firm' expected return on common equity (ROE). b. The higher its tax rate, the lower a firm's BEP ratio will be, other things held constant. c. The higher the interest rate on its debt, the lower a firm's BEP ratio will be, other things held constant. d. The higher its debt ratio, the lower a firm's BEP ratio will be, other things held constant. e. If a firm's expected basic earning power (BEP) is constant for all of its assets and exceeds the interest rate on its debt, then adding assets and financing them with debt will decrease the firm's expected return on common equity (ROE).arrow_forward
- Long-term solvency refers to a company’s ability to pay its long-term obligations. Financing ratios provideinvestors and creditors with an indication of this element of risk.Required:1. Calculate the debt to equity ratio for AGF for 2018. The average ratio for the stocks listed on the New YorkStock Exchange in a comparable time period was 1.0. What information does your calculation provide aninvestor?2. Is AGF experiencing favorable or unfavorable financial leverage?3. Calculate AGF’s times interest earned ratio for 2018. The coverage for the stocks listed on the New YorkStock Exchange in a comparable time period was 5.1. What does your calculation indicate about AGF’s risk?arrow_forward1. Which of the following models for mathematics of the financial markets is dependent on expectations or probabilities of changes in the value of an underlying asset? A. Monte Carlo Simulation B. Black Scholes Model C. Cox-Ross-Rubinstein Model 2. Models for the financial markets are primarily used for all of the following, except, A. Algorithmic Trading B. Technical Analysis (Short term trading) C. Fundamental Analysis (Long term investing D. All of the above 3. Which among the following organizations use financial mathematics as part of their core operation? A. Investment banks B. Government C. Hedge funds D. All of the above 4. S1: Quantitative finance helps to allocate resources to provide the optimum returns. S2: Financial models are accurate. A. Both statements are true B. Both statements are false C.…arrow_forwardN1. Accountarrow_forward
- Question (1): Answer the following questions: Discuss the differences among decision-making under certainty, decision making under risk, and decision-making under uncertainty. Drink Investment is incorporated in investing money in stocks of companies producing drinks. It plans to invest 2 shares and 1 Government bond and maximize the portfolio's annual return. State the name of the application that should be used in the previous case. ( ___________________ )arrow_forward1. Which of the following pairs of financial statement analysis tool will be given more emphasis by a firm that is considering whether to grant trade credit or sell on account to a new client? Choices: Current and cash ratio Return on sales and return on asset Debt and debt-to-equity ratio Book value and price-to-earnings ratio 2. It is assumed that the Cost of equity and rate of return are both constant under Walter's Model of Dividend Relevance, if the cost of equity is higher than the rate of return, it is optimal that Choices: No dividend to be given to shareholders None of the choices is correct. The firm is indifferent as to distribute dividends or to reinvest the income All the earnings for the period shall be distributed to shareholders 3. Which of the following is correct with regards to cash discounts offering? Choices: These are granted because customer acquires high quantity of products and goods It is used lengthen the cash conversion cycle without putting pressure…arrow_forwardTravellers Inn (Millions of Dollars) Cash $ 10 Accounts payable $ 10 Accounts 20 Accruals 15 receivable Inventories 20 Short-term debt Current assets $ 50 Current liabilities $ 25 Net fixed assets 50 Long-term debt 30 Preferred stock (50,000 shares) 5 Common equity Common stock (3,800,000 shares) $ 10 Retained earnings 30 Total common equity $ 40 Total assets $100 Total liabilities and equity $100 The following facts also apply to TII: 1. The long-term debt consists of 29,412 bonds, each having a 20-year maturity, semiannual payments, a coupon rate of 7.8%, and a face value of $1,000. Currently, these bonds provide investors with a yield to maturity of 11.8%. If new bonds were sold, they would have an 11.8% yield to maturity. 2. TII's perpetual preferred stock has a $100 par value, pays a quarterly dividend per share of $2, and has a yield to investors of 8%. New perpetual preferred stock would have to provide the same yield to investors, and the company would incur a 3.55% flotation…arrow_forward
- Q6. Investment is an asset acquired or invested in to build wealth and save money from the hard earned income. Investment is primarily made to obtain an additional source of income or gain profit from the investment over a specific period of time.Some investor look for a long period according to their needs but some focus on short term period. For this purpose two types of analysises are important. One analysis attempts to calculate the intrinsic value of a stock using data such as revenue, expenses and growth prospective and another analysis uses best market activities, stock price trends and past data to predict activities in future. a.What is the difference in both analyses? b.Which analysis is useful for long term investor and financial advisors? Give the reasons with examples.arrow_forwardH. As a new analyst, you have obtained the prices for the stocks of both Lulu and Lemon. Both stocks did not paid any dividends during the entire period. (1) (II) (III) Your manager has asked you (i) to compute the rate of return and standard deviation of the two stocks and suggest that because these companies produce similar products, you should continue your analysis by (ii) computing their covariance and correlation. Show all calculations. Year 2019 2020 2021 2022 2023 Closing prices of LuLu Closing prices of Lemon 20.50 30.10 19.92 28.50 22.45 30.10 24.50 40.30 20.50 36.40 Compute the return and standard deviation of a portfolio with 60% investment in Lulu and 40% in Lemon. Would you recommend putting these two stocks together in a portfolio? Explain why or why not.arrow_forwardDetermine the decision (the investment decision, or the financing decision, or the dividend policy decision) nature of each of the following issues: a) What are the least expensive sources of funds for the firm? b) large retailer such as LuLu Hypermarket, deciding whether to open another store? c) Will we purchase on credit or will we borrow in the short term and pay cash? d) The decision to develop and market a new software by a company such as Microsoft. f) Choosing among lenders and among loan types?arrow_forward
- EBK CONTEMPORARY FINANCIAL MANAGEMENTFinanceISBN:9781337514835Author:MOYERPublisher:CENGAGE LEARNING - CONSIGNMENTFundamentals of Financial Management (MindTap Cou...FinanceISBN:9781337395250Author:Eugene F. Brigham, Joel F. HoustonPublisher:Cengage LearningFundamentals of Financial Management (MindTap Cou...FinanceISBN:9781285867977Author:Eugene F. Brigham, Joel F. HoustonPublisher:Cengage Learning