INVESTMENTS(LL)W/CONNECT
11th Edition
ISBN: 9781260433920
Author: Bodie
Publisher: McGraw-Hill Publishing Co.
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Chapter 8, Problem 1CP
Summary Introduction
To determine: To detail about the risk-return relationships of two companies stocks, over a considered period of time. Also, provide comments on the future risk-return relationships of these two stocks, based on the data provided, assuming these two stocks were included in a common stock diversified portfolio.
Introduction: Risk-return relationship states that the higher the return, the higher the risk will be associated with that stock.
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Dynamic Energy Wares (DEW) has decided to change the manner in which it distributes its products to large companies. The change in the distribution system comes at a time when DEW’s profits are declining. The declining profits might not be the sole reason for the change, but it appears to be the primary impetus for the decision. It also appears that the new policy requiring DEW’s distributors to increase inventory levels before the end of the fiscal year will artificially inflate DEW’s sales for the current year. However, DEW’s new policy does not require the distributors to pay for any increased inventory until next year (six months), and any unsold inventory can be returned after nine months. So, if the demand for DEW’s products actually is decreasing, the impact will appear on next year’s financial statements. If the financial manager actually intends to artificially inflate DEW’s profits this year, she must realize that such actions eventually will “catch up” with her.
Discussion…
what is distributors’ meeting?
What is ethical dilemma?
Chapter 8 Solutions
INVESTMENTS(LL)W/CONNECT
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