AFM 101 Classroom Solutions - Oct 10th

AFM 101 Classroom Solutions - Oct 10th - E64 Suncors price...

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E6–4 Suncor’s price per share reflects investors’ expectations of a certain level of profit that they will eventually receive in the future in the form of dividends. Prior to the announcement of the earnings for the fourth quarter of fiscal year 2009, the share price reflected investors’ expectations at that time based on analysts’ forecasts. The reported actual earnings missed analysts’ expectations, which prompted investors to revise their expectations downward, causing a drop in the price per share, even though the company reported a significant increase in earnings compared to the previous year. The higher earnings for the fourth quarter of fiscal year 2009 had already been incorporated into analysts’ forecasts prior to the announcement of the actual earnings. A second possible reason for the drop in share price is that during the traditional teleconference call regarding these results, the top executives of the company provide guidance to investors about the near term future of Suncor. The guidance may have been bad news, leading investors to revise their expectations about the company’s future cash flows. E6–11 (Amounts are in millions) Cash (+A) ................................................................ 31 Share capital (+SE) ($1,300 – $1,269) ......... 31 Retained earnings (–SE) .......................................... 560 Cash (–A) .....................................................
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