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Chapter_01-Solutions - Valuation Measuring and Managing the...

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Valuation: Measuring and Managing the Value of Companies, Fifth Edition Chapter 1 Solutions Why Value Value? 1. One benefit of a long-term perspective on value creation is that it leads to only engaging in activities that create value and not wasting effort on activities that do not. Also, it is possible to engage in activities that appear to have positive benefits in the short term but can be detrimental in the long term (e.g., focusing on growth while ignoring return). Such a misguided focus can lead to bubbles. With respect to the overall economy, evidence suggests that when firms focus on creating value, that leads to firms engaging in a higher level of corporate responsibility and a healthier economy with higher employment. 2. The stock market mirrors the real economy over the long term. Mild inflation tends to be positive for stocks when the companies have some monopoly power, but high inflation can introduce distortions that hurt company growth. A higher level of interest rates means
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