Making Decisions as a Manager: Evaluating the Effects of Business Strategy on Return on Equity
Sony is a world leader in the manufacture of consumer and commercial electronics as well as the entertainment and insurance industries. Its ROE has increased from 9% to 14% over the last three years.
Required:
1. Indicate the most likely effect of each of the changes in business strategy on Sony’s ROE for the next period and future periods (+ for increase, – for decrease, and NE for no effect), assuming all other things are unchanged. Explain your answer for each. Treat each item independently.
a. Sony decreases its investment in research and development aimed at products to be brought to market in more than one year.
b. Sony begins a new advertising campaign for a movie to be released during the next year.
c. Sony issues additional stock for cash, the proceeds to be used to acquire other high-technology companies in future periods.
| Present Periods ROE | Future Periods’ ROE |
a. |
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b. |
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c. |
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