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Unformatted text preview: The last step is to divide the value of equity by the number of shares of common stock. 15-3 A company can be profitable and yet have an ROIC that is less than the WACC if the company has large capital requirements. If ROIC is less than the WACC, then the company is not earning enough on its capital to satisfy its investors. Growth adds even more capital that is not satisfying investors, hence, growth decreases value. 15-4 Entrenched managers consume to many perquisites, such as lavish offices, excessive staffs, country club memberships, and corporate jets. They also invest in projects or acquisitions that make the firm larger, even if they dont make the firm more valuable. 15-5 Stock options in compensation plans usually are issued with a strike price equal to the current stock price. As long as the stock price increases, the option will become valuable, even if the stock price doesnt increase as much as investors expect....
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This note was uploaded on 07/13/2011 for the course FIN 4414 taught by Professor Staff during the Spring '08 term at University of Florida.
- Spring '08