Bus361 Answers to the Suggested Problems of Chapter 1

Bus361 Answers to the Suggested Problems of Chapter 1 -...

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Unformatted text preview: Chapter 1 An Overview of Financial Management Answers to the Suggested End-of-Chapter Questions 1-2 No, the stocks of different companies are not equally risky. A company might operate in an industry that is viewed as relatively risky, such as biotechnologywhere millions of dollars are spent on R&D that may never result in profit. A company might also be heavily regulated and this could be perceived as increasing its risk. Other factors that could cause a companys stock to be viewed as relatively risky include: heavy use of debt financing vs. equity financing, stock price volatility, and so on. 1-3 If investors are more confident that Company As cash flows will be closer to their expected value than Company Bs cash flows, then investors will drive the stock price up for Company A. Consequently, Company A will have a higher stock price than Company B....
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Bus361 Answers to the Suggested Problems of Chapter 1 -...

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