Question: Why is share value based on the

> State the main assumptions required for the existence of efficient markets.

> Describe two common tests for the weak form and for the semi-strong form of the EMH.

> The manager of Quest Adventures Ltd. is puzzled. Analysts are saying that the future prospects for his company are poor because the stock price has dropped 5 percent. a. Explain to the manager the relationship between stock prices and market expectations

> Describe the various forms of EMH.

> Explain the efficient market hypothesis (EMH).

> How are multiples linked to a discounted cash flow valuation?

> Why do P/E ratios differ even between comparable firms?

> What drives P/E ratios?

> 1. Park Recreational Vehicles Ltd. shares are currently selling for $37.50 each. You bought 200 shares one year ago at $34 and received dividend payments of $1.50 per share. What was your total dollar capital gain this year? a. $400 b. $300 c. $700 d. No

> The expected return of ABC is 15 percent, and the expected return of DEF is 23 percent. Their standard deviations are 10 percent and 23 percent, respectively, and the correlation coefficient between them is zero. a. What is the expected return and standa

> 1. Jason bought 46,000 shares of CTB Inc. on January 12, 2015. At that time, CTB Inc. had 2 million common shares outstanding. Calculate the portion of CTB Inc. that Jason owns. a. 2.3 percent b. 1.4 percent c. 6.0 percent d. 1.5 percent 2. You bought 10

> Karlyle Inc. has just paid a dividend of $4. An analyst forecasts annual dividend growth of 9 percent for the next five years; then dividends will decrease by 1 percent per year in perpetuity. The required return is 12 percent (effective annual return, E

> Calculate the leading P/E ratio, given the following information: retention ratio = 0.4, required rate of return = 10 percent, expected growth rate = 6 percent.

> Star Corporation has issued $1 million in preferred shares to investors with a 6.75 percent annual dividend rate on a par value of $100. Assuming the firm pays dividends indefinitely and the required rate is 11.5 percent, calculate the price of the prefe

> State the relationship that the required rate of return, the expected growth rate, and expected dividends have with the market share price, according to the constant growth DDM.

> What are the two main components of the required rate of return on equity securities?

> How do equity shareholders exert their influence over a company?

> What other relative valuation multiples are useful in valuation?

> What are some of the key assumptions that must be made when applying the valuation concepts discussed in this chapter to an actual valuation situation?

> List three reasons why one firm may have a higher leading P/E ratio than a comparable firm.

> You are interested in using short selling to increase the possible returns from your portfolio. 20 You have short sold $200 of ABC and invested $1,200 in DEF. The following data are available on ABC and DEF: The correlation between ABC and DEF is 0.4. Ca

> Determine the present value of growth opportunities for a company with a leading EPS of $1.85, a required rate of return of 8 percent, and a current stock price of $50.

> FinCorp Inc. purchased a stock for $48. It expects to receive a dividend of $4 in one year and to sell the stock immediately afterwards. a. If the sale price is $65, what is the expected one‐year holding period return? b. If the sale price is $38, what i

> List the elements needed for the calculation of a share price using the constant growth DDM.

> Oak Furniture Company’s most recent earnings were $300,000. From these earnings, it paid dividends on common equity totalling $175,000. There are 50,000 common shares outstanding. The ROE for Oak Furniture is 12 percent. Determine the following: a. i) Ea

> ToolWerks Company is expected to earn $12 million next year. There are 4 million shares outstanding and the company uses a dividend payout ratio of 30 percent. The required rate of return for companies like ToolWerks is 10 percent. The current share pric

> Fill in the missing information in the following table: Common Shares in Canada Dividend Required Dividend Current Expected Company Price Retum Growth Dividend in 1 Year A 15% $4.50 $5.00 B $600 3% 1% $70 5% $8.00 D $55 $10.00 $11.00 E 14% 6% $9.50 1

> The preferred shares of Chinook Electrical Co. have a par value of $100 and a dividend rate of 8 percent. The current price is $105. If the risk‐free rate is 2.5 percent, what is the risk premium associated with these preferred shares?

> Fill in the missing information in the following table: Preferred Shares in Canada Dividends Par Required Dividend Paid per Company Price Value Return Rate Share A $100 8% 5% $5.00 B $60 $50 3% $70 $75 $8.00 $50 $50 14% $150 $30 7% $100 4% $9.50 G 7%

> Describe how to estimate the present value of growth opportunities (PVGO) and what it represents.

> Describe the constant growth DDM valuation method.

> FinCorp Inc. is exploring the risk of different portfolio allocations between two stocks. Complete the following table. Case 1 Case 2 Weight in stock 1 35% 40% Weight in stock 2 Standard deviation of stock 1 3% Standard deviation of stock 2 25% 20% C

> Describe the characteristics of preferred shares.

> Larch Foods Inc.’ s current dividend is $5. Dividends are expected to decline by 4 percent per year for the next three years, and then remain constant thereafter. The required rate of return for this type of company is 12 percent. What is the current sto

> Barchuk Mining Inc.’s share is currently selling for $120. The current dividend is $5 and the required rate of return is 10 percent. What is the expected dividend growth rate?

> Global Systems Inc. has just paid $2.40 in dividends D0 $2.40 . The firm is expected to continue paying dividends in perpetuity. a. Suppose that the dividends are constant (Di = $2.40 for all i) . What will be the stock price of a share of Global System

> Apex Financial Ltd. has completed a fundamental analysis of Spark Energy Inc. Spark Energy is a young company and expects to invest heavily in facilities and research and development during the next five years. It expects to reap the benefits of its rese

> Selkirk Inc. has an expected profit margin of 10 percent, turnover ratio of 1.8, and a leverage ratio of 0.3. The leading EPS is $2.50 and the firm uses a dividend payout ratio of 35 percent. The required return on firms with Selkirk’s risk characteristi

> As part of your duties at Apex Financial Ltd. you have been asked to review the analysis carried out by a rival company—Prime Group—of the WX Media Company. WX has had a constant P/E ratio for the past five years. Prime’s analyst has made the following s

> Apex Financial Ltd. is interested in investing in Scion Systems Inc. Scion’s current dividend is $5.50 and its shares are selling for $40. The required rate of return for firms like Scion is 8 percent. Apex has conducted an extensive analysis of the comp

> Dillon Mechanical Ltd.’ s preferred shares have a par value of $50, a dividend rate of 7 percent, and trade at a price of $70. Sherwood Inc.’s preferred shares have a par value of $60, have a dividend rate of 4 percent, and trade at a price of $45. Which

> INV Design Ltd. just paid a dividend of $4 and its current earnings per share is $6. The current T‐bill rate is 3.5 percent and INV ’ s risk premium is 10 percent. The net profit margin, asset turnover, and debt‐to‐equity ( D/E) ratios are 15 percent, 1.

> In Practice Problem 40, the correlation coefficient ρ AB is 0.4 and the standard deviations of stock A and stock B are 28 percent and 15 percent, respectively. Calculate the standard deviation of the portfolio.

> TelTec Inc. has a patent that will expire in two years. The firm is expected to grow at 10 percent for the next two years and dividends will be paid at year end. It just paid a dividend of $1. After two years, the growth rate will decline to 4 percent im

> JINX Ltd. had earnings per share of $5 as of December 31, 2015, but paid no dividends. Earnings were expected to grow at 15 percent per year for the following five years. JINX Ltd. will start paying dividends for the first time on December 31, 2020, dist

> TelTec Inc. stock is expected to sell for $10 per share four years from now. TelTec has just paid a dividend of 50 cents per share. Dividends are expected to grow at a rate of 5 percent per year for the next four years. Assume that the required rate of r

> Dillon Mechanical Inc. ’ s first dividend of $2 per share is expected to be paid six years from today. From then on, dividends will grow by 10 percent per year for five years. After five years, the growth rate will slow to 5 percent per year in perpetuit

> Why can’t the expected growth rate exceed the investor’s required return in the constant growth model?

> Why does an increase in the expected dividend growth rate increase share prices?

> How can we estimate future growth rates?

> What is the “bigger fool theorem” of valuation?

> Apex Financial Ltd. is concerned about the impact of errors in its estimates of the future dividend payout ratio for Barnett Steel Corporation. Assume that the current dividend is $1, ROE is fixed at 10 percent, and the required rate of return is 15 perc

> An investor purchased 600 shares of stock A at $23 per share and 1,000 shares of stock B at $34 per share one year ago. Stock A and stock B paid quarterly dividends of $1 per share and $1.50 per share, respectively, during the year. One year later, the i

> What is the difference between the covariance and the correlation coefficient?

> 1. Why is it difficult to compare the financial statements of a U.S. company with those of a company in India or Germany? 2. How would McDonald’s benefit if IFRS were adopted for use in all countries worldwide?

> Do you think that supply-chain management and ERP Systems have helped both businesses and consumers? Why or why not?

> How can global operations management be used as a source of competitive advantage?

> 1. What are the advantages and disadvantages of using licensing and exporting? 2. Will Mary need to use the services of a freight forwarder? If so, what specific services? 3. Are there any other countries, besides those mentioned, that might be importan

> What are some of the major economic reform themes that are common to the three international organizations promoting globalization?

> What are some underlying factors that are causing decoupling to happen as societies move from a unipolar to a multipolar world? In your opinion, in which direction is the balance of global economic power shifting?

> Do you believe that there is a “digital divide” in the global economy? Is globalization narrowing that gap? If so, how?

> How would you make a convincing case that open trade in goods and services as well as free flow of foreign direct investment will enhance the well-being of (a) consumers, (b) producers, and (c) the government of countries? Give specific examples to prove

> When would a country such as France use socioeconomic rather than geopolitical reasons to support its trade policy? Can you provide some examples

> 1. What are some arguments in favor of continuing government support of Citigroup? Discuss who would be hurt by the bank’s failure. Is the failure of Citigroup different from that of other firms? Does the government have people to manage such a global fi

> Some believe there is a disconnect between trade theory and trade policy. What rationale could the United States use to support its trade policies? Give specific examples.

> How should companies deal with international customers who complain?

> What are the advantages of using freight forwarders?

> What are some of the disadvantages that can result when companies use channels of distribution to market their products overseas?

> What are the advantages of using trade shows to promote products in international markets?

> How can use of the product life cycle assist international marketers?

> What is the difference between standardization and adaptation?

> What are the three major markets that exist in all foreign markets?

> Why do companies need to research their international markets?

> What trade theories support the recent rise of China and India on the global stage? Explain your views in detail.

> What is the difference between foreign exchange risk arising from translation, transactions, and economic risks?

> A matrix structure may provide the advantages of the functional and divisional structures, but it may also provide the disadvantages of these two structures. Argue in favor of or against this assertion.

> Compare and contrast the following organizational structures: functional structure, product structure, market structure, and geographical region structure.

> What is the difference between export departments and international divisions?

> Organizational structures can help a company fail or succeed. Why do you think that is the case?

> 1. How will the expansion of sexual harassment laws globally affect company policies and procedures? 2. How will companies handle the increase in possible lawsuits stemming from sexual harassment legislation?

> Why are global businesses evolving toward stateless corporations?

> If you were president of the United States and trying to negotiate better labor standards for NAFTA, what new provisions might you try and negotiate (at least from the U.S. perspective)?

> Why is it often very difficult for supervisors, in any culture, to provide employees with a negative performance appraisal?

> What are the pros and cons of using the Internet for the “virtual staffing” of corporate operations?

> What are some of the potential problems global businesses face when they outsource or subcontract their manufacturing work to companies in other countries? (e.g., a U.S. sneaker company outsourcing the manufacturing of its sneakers to a separate company

> Before locating operations in a country, why should a MNC evaluate that country’s tax system?

> 1. What are some advantages and disadvantages of the Shell Matrix? 2. Why do you think Shell has undergone so many organizational restructurings? 3. How would you decide what would be Shell’s best organizational structure?

> 1. What are the advantages and disadvantages of biofuels in terms of addressing the challenge of sustainable development? 2. Should bioethanol production from corn be encouraged, given that corn is used as a basic cereal in many societies? Should bioetha

> 1. Is economic nationalism justified? 2. Is the Smoot-Hawley plan better or worse than “Buy American”? “Buy Spanish”? Or “British jobs for British workers”? Explain fully.

> Globalization temporarily creates “winners” and “losers.” What reform would you suggest to help those who are not benefiting from globalization? How might these reforms be implemented?

> Regional integration in Latin America offers tremendous potential. Yet economic achievements are relatively modest so far. Why?

> Although the European Union is the most advanced form of regional integration, it is currently facing a challenging time. What are some of the major challenges facing the EU?

> Will countries be better off under a multilateral economic liberalization regime or under a system of regional economic integration? Why?

> Quite often, host countries have a love-hate relationship with MNEs. Why?

> Which type of company often adopts hybrid structures?

> MNEs try to maximize profits. How could MNEs maximize profits and minimize profit volatility at the same time?

> How does financial ratio analysis enable an investor to compare two companies?

> What is a recent development in the evolution of multinational enterprises and how does that development affect globalization?

> In what ways did the organizational culture at Bernard Madoff Investment Services company help lead to Madoff’s success for so many years?

> Do you think six sigma quality control initiatives really work?