Question

1. If stock prices should be based on future cash flows (i.e., dividends) why do investors...

1. If stock prices should be based on future cash flows (i.e., dividends) why do investors purchase stocks of companies that do not pay dividends?

2. There are some that say that U.S. firms concentrate too much on short-term profits and not enough on long-term profits. Do you agree? How does this conflict with the valuation of stock based on future cash flows.

3. Describe the Efficient Market Hypothesis.

4. Describe

Weak efficiency
Semi-strong efficiency

Strong efficiency

Which, if any, do you believe is true in U.S. markets? Why?

Business   Finance   
0 0
Add a commentTranscribed image text
Next >

Homework Answers

Answer #1

1) when companies do not give dividends , they retain their entire earnings and invest in profitable investment opportunities ( capital expenditures) and also they invest a certain portion of their earnings in working capital to sustain their current operations. So investors forego dividends in the hope of a capital gain that such firms might experience since they are investing completely for the growth of their firms. Hence such investors prefer capital gain than dividends.

0 0
Know the answer?
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Log In

Sign Up

Not the answer you're looking for?
Ask your own homework help question
Similar Questions
1. There are some that say that U.S. firms concentrate too much on short-term profits and...
1. There are some that say that U.S. firms concentrate too much on short-term profits and not enough on long-term profits. Do you agree? How does this conflict with the valuation of stock based on future cash flows.
There are some that say that U.S. firms concentrate too much on short-term profits and not...
There are some that say that U.S. firms concentrate too much on short-term profits and not enough on long-term profits. Do you agree? How does this conflict with the valuation of stock based on future cash flows.
Why is it important to evaluate capital investments based on the expected future cash flows and...
Why is it important to evaluate capital investments based on the expected future cash flows and not the expected future profits to be generated by the potential investment opportunity?
1. You go to your regular appointment with your financial advisor Mr. Dayan. You complain about...
1. You go to your regular appointment with your financial advisor Mr. Dayan. You complain about the recent news in the Wall Street Journal that a member of Congress used information in a classified briefing to make profitable investment decisions. You argue that investors are able to earn abnormal returns tracking firm fundamentals such as earnings announcements, and that you are sympathetic to that. However, the Congress member’s ability of profiting from the briefing is unacceptable. Mr. Dayan disagrees with...
Corry did research to show stock return patterns. As he would expect, stocks with large positive...
Corry did research to show stock return patterns. As he would expect, stocks with large positive earnings (winners) experience a positive return on the announcement day while stocks with large negative earnings surprises (losers) earn negative returns on the announcement day. More surprisingly, within the 20-day period prior to the earnings announcements, prices of winner stocks tend to go up while loser stocks experience negative returns. There is no evidence of changes in analyst expectations prior to the announcement, and...
Why do companies use a mid-year adjustment when discounting future free cash flows? What do you...
Why do companies use a mid-year adjustment when discounting future free cash flows? What do you do with “in the money” executive stock options when calculating the value of a company?
The value of a share of common stock depends on the cash flows it is expected...
The value of a share of common stock depends on the cash flows it is expected to provide, and those flows consist of the dividends the investor receives each year while holding the stock and the price the investor receives when the stock is sold. The final price includes the original price paid plus an expected capital gain. The actions of the marginal investor determine the equilibrium stock price. Market equilibrium occurs when the stock's price is -Select-less thanequal togreater...
I. The prices of financial assets are based on the expected value of future cash flows,...
I. The prices of financial assets are based on the expected value of future cash flows, discount rate, and past dividends. A. True B. False II. By using different discount rates, the market allocates capital to companies based on their risk, efficiency, and expected returns. A. True B. False III. A 10-year bond pays 12% interest on a $1,000 face value annually. If it currently sells for $1,100, what is its approximate yield to maturity? A. 10.35% B. 10.91% C....
1. Why do we use percentage returns rather than dollar returns when we compare returns? 2....
1. Why do we use percentage returns rather than dollar returns when we compare returns? 2. Last year your portfolio made 15%; the stock market made 10%, and the risk free rate was 2%. If the CAPM is correct, what must the beta of your portfolio be? 3. The world can change but basic financial math doesn’t. The obvious decreases in future cash flows from the virus is bringing stocks down. What is the other, probably more important factor driving...
QUESTION 1 Dividend payments are categorized as: cash flow from operating activities. cash flow from investment...
QUESTION 1 Dividend payments are categorized as: cash flow from operating activities. cash flow from investment activities. cash flow from financing activities. all of the above. QUESTION 2 The world of finance can be divided into three broad areas: the banking system, financial management and investments/financial markets. True False 5 points QUESTION 3 Bondholders are rewarded by receiving interest and a share of the company's profits. True False 5 points QUESTION 4 Net working capital can be referred to as:...
ADVERTISEMENT
Need Online Homework Help?

Get Answers For Free
Most questions answered within 1 hours.

Ask a Question
ADVERTISEMENT