Question

Question 2 ABC is a single business organization with a product structure. In 2017, ABC’s average stock price was $100 per share and it had 10 million shares of outstanding stock. ABC had net income of $100 million in 2017; projections show that net income will remain stagnant at approximately $100 million during 2018. ABC has never paid dividends to its stockholders but had excess cash of $70M at the end of 2017. ABC had a current ratio of 8 to 1 and a debt-to-assets ratio of 20% at the end of 2017. One of ABC’s strategic goals is to maximize stockholder wealth over the long term. An objective related to this goal is to increase average stockholder wealth by 10% by the end of 2018. Assume ABC’s average price-earnings ratio will remain the same in 2018. Based on ABC’s goal and objective given above, adopt financial tactics to meet their objective in 2018. You must explain your answer in detail to get credit on this part of the assignment. You may use the Internet or other external resources to research the meaning of any terms in this question that you do not understand. This has all the info that is needed.

Answer 1

solution;- the firm can made the investments in capital intensive projects like expansion or diversification of business which results in large amont of profits at later stages.high profits of a company is a good sign to boosts the share price of a company .

since the company has current ratio as 8:1 wich shows significant amount of working capital in its hands to pay off the current obligations , also company has significant amount of assets to cover the risks of its debtholders .

therefore company is in a healthy position to undertake new investments proposals by raising amount in the form of debt because company has enough funds in its hands to meet the current obligations associated with it also has enough assets in hand to cover the risks of debtholders,