Question

Answer in one line:

1) how can the number of share outstanding be manipulated?

2) if IRR of a project is greater than the discount rate K. What would be the status of NPV and PI?

3) name the ratios which measure profitability for the company and from the perspective of shareholders?

4) Will maximizing earning per share maximize current shareholder wealth ?

5) list three properties of short working capital portfolios?

6) why capital budgeting do not consider sunk cost ?

7) Concept of externalities with example?

8) A bank pays 12% compounded quarterly, what is the effective 1-month rate?

Answer 1

Answers:-

1) As we know EPS = Earnings / shares outstanding, there are two types of EPS, one is Diluted and other is Basic so shares outstanding can be manipulated by using one of them instead of other.

2) If IRR of a project is greater than the discount rate K the (Net present value) NPV will be positive and the (Profitability Index) PI is greater than 1.

3) The profitability ratios from the perspective of shareholders are Operating profit margin ( EBIT / revenue) , Return on Assets ( net income / average total assets), Return on Equity ( net income / average total equity), Return on total capital ( EBIT / average total capital)

4) No, in order to maximize the shareholders the company should try to maximize the stock price in the long term.

Note :- Kindly put other questions in separate posts