complete problems 3 and 4 only Investors know for sure that the CEO of firm A wi
ID: 1255085 • Letter: C
Question
complete problems 3 and 4 only
Investors know for sure that the CEO of firm A will undertake an investment that will yield $100 million profit next year and then $2 million each year after that for 10 years. They also know for sure that the CEO of firm B will undertake an investment that will yield nothing for two years and then a profit of $20 million per year for 10 years. Which company will have the higher stock price today, next year, the second year, the third year? The investors in exercise 2 are surprised by firm B's performance in year 5. Instead of being $20 million, the firm's profits ait; $40 million. What happens to firm B's stock price in years 6 and 7? Nova Corporation just announced that it had a record year. Its earnings have increased nearly 10 percent. Explain how this announcement can lead to a decline in the price of Nova Corporation's stock.Explanation / Answer
3. Since firm B's profit increased from $20 to $40...there would be a rise in firm B's stock price At the same time the firm A's Stock price will decrease since the profits are low... 4. Since the earnings of the corporation increased that means the company retained more amount of money instead of giving out dividends to the investors... If investors dont get dividend the equilibrium price will fall hence the decline in price of Nova Corporation's Stock
Related Questions
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.