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Solved Case Solution: Investors want companies to lift capital spending-survey By Adam Samson (Download Now)

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Description

Solution Pages: 5

Files that you will download:

Word (.docx)

Questions Covered in the Solution

1. Read Investors want companies to lift capital spending-survey (please see below) making a list of the issues suggested in the article. Realize that the issues facing investors (owners of corporate securities) and managers (issuers of corporate securities) go beyond the capital budgeting issue mentioned in the headline.

2. Explain how the equity risk premium influences beta which influences k-wacc.

3. Explain how EBIT influences debt capacity.

Sample of Solution

Summary:

The corporations are administered with an essence to maximize return to its ultimate shareholders. Even though, stock’s price can influence return by altering capital gain for the shareholders and respective investors. But effectively the pertinent constituent for defining the value of the company and eventually the return is the long-term growth which the management can ensure by paying all its creditors. Most of the mutual funds’ managers, potential investors, are of the view that the management of a typical company, should be looking into dividend sharing mechanisms and ponder on improving the price of their stocks rather than the investment alternatives. Though, increase in price can invigorate investor’s confidence which eventually leads to greater capital support from the investors. But, effectively focusing on just the price of the stock is not a sustainable strategy in itself.

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  1. Read Investors want companies to lift capital spending-survey (please see below) making a list of the issues suggested in the article. Realize that the issues facing investors (owners of corporate securities) and managers (issuers of corporate securities) go beyond the capital budgeting issue mentioned in the headline.

There has been a conflict of preferences among the potential investors and the management executives. Since, the managers are interested in the market valuation of the company, which in essence can be defined by the market capitalization. Hence, the managers are more concerned about the price of the stock rather than the eventual capital investment to ensure the perpetual growth of the company. While on the other hand, investors want company managers to direct their earnings’ disposals onto capital expenditures rather than dividends and cash backs.

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