Liquidity Ratio: Current ratio = total current assets / total current liabilities *Higher the current ratio, the more liquid the firm is considered to be. A ratio of 2.0 is occasionally cited as acceptable, but a values acceptability depends on the indust
Agency Problem Whenever a manager owns less than 100% of the firm's equity, a potential agency problem exists. In theory, managers would agree with shareholder wealth maximization. However, managers are also concerned with their personal wealth, job secur
Chapter 5: 1. Risk is the variability in returns associated with an investment 2. You compute the return on the asset by subtracting the beginning price from the ending price, adding any cash distributions, and dividing by the beginning price. 3. A person
Chapter 6:
1. Valuation is the process that links risk and return in order to determine the worth of 2. 3. 4. 5. 6. 7. 8.
an asset. The value of an asset is the present value of all future cash flows it is expected to provide over a relevant time period.
Chapter 7 1. Valuation is the process that links risk and return in order to determine the worth of an asset. 2. The value of an asset is the present value of all future cash flows it is expected to provide over a relevant time period. 3. Risk is generall
Chapter 9:
1. The payback period is the exact amount of time it takes the firm to recover its initial
investment 2. A firm is evaluation a proposal which has an initial investment of $45,000 and has cash flows of $5,000 in year 1, $20,000 in year 2, $15,0
Rate of Return = (annual dividend/sell price per share) *100
Required rate of return = P=(annual dividend*(1+increase % annually)/(required rate of return
increase %annually) = one share of stock
Expected dividend in year n = annual dividend * (1 + incre