MANAGERIAL FINANCE. Please help
posted by Natacha on .
Hi, I have some questions about managerial finance. I do not really understand them so can u plz help me out!!
Here are the questions:
1. High earnings per share (EPS) do not necessarily translate into a high fundamental stock price. TRUE or FALSE and WHY?
2. Higher risk tends to result in a higher share price since the stockholder must be compensated for the greater risk. TRUE of FALSE and WHY?
3. Due to agency problems it is often best for shareholders to run their own firms. TRUE of FALSE and WHY?
4. Marginal analysis states that financial decisions should be made and actions taken only when added benefits exceed added costs. TRUE or FALSE and WHY?
5. The higher the free cash flows (FCF) that a given firm generates the higher will be its fundamental value. TRUE or FALSE and WHY?
6. When considering each financial decision alternative or possible action in terms of its impact on the share price of the firm’s stock, financial managers should accept only those actions that are expected to increase the firm’s profitability.
TRUE or FALSE and WHY??
Thank you for your help.
I can get you started --
1. Investors in stocks are fickle. Often they'll bid up the price of a stock if EPS rise. But -- it doesn't always happen. I've seen stocks that continually increase their EPS for three or four years, but the price of the stock doesn't change much. Part of a stock price is what investors think the stock is going to do in the future. If shareholders bid up the price of a stock so that future growth is considered in this price, the stock price may not move much.
Higher risk has little to do with stock prices. So-called penny stocks -- and those that sell for a dollar or two a share are usually the riskiest stocks, while Google is trading around $650 a share.
Now it's your turn. What do you think the other answers are?
these were my midterm managerial finance questions!! where did u get these from ??