Stock Valuation, Risk and Returns

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Part 1: Interest Rates

Many managers do not understand the various ways that interest rates can affect business decisions. For example, if your company decided to build a plant with a 30-year life and short-term debt financing (renewed annually), the cost of the plant could skyrocket if interest rates were to return to their previous highs of 12% to 14%. On the other hand, locking into high, long-term rates could be very costly also with a long period when low short-term interest rates were to be available. As you can see, the ability to know your economic environment and its impact on projected interest rates can be crucial to making good financing decisions.

Describe two to three macroeconomic factors that influence interest rates in general. Explain the effects of each factor on interest rates.

Now think about the industry in which you are employed or one in which you have past experience. To what macroeconomic factors is your industry most sensitive?

Describe two contemporary factors that seem to be impacting your industry today, and identify their impacts on the interest rates experienced within your chosen industry.

 

Part 2: Stock Valuation, Risk and Returns

Stock valuation

Dividend Discount Model Stock Valuation

How to value a company using discounted cash flow (DCF)

Stock Valuation and Investment Decisions

https://www.youtube.com/watch?v=3BIIiUyr3-w(vidoe link)

The links above contain information on stock valuation, risk, and returns. Please review each one of them. Based on the knowledge gained from the materials presented in the links above, complete the following activities:

Present a detailed discussion of what you learned about stock valuation. Provide examples of how your company has used the concepts. Do you believe financing a company’s operation using stock is better than financing with bonds? Why or why not? Support your discussion with a numerical example.

Based on the materials presented in the “Risk and Return” video, present a discussion on why the materials are important in financial decision-making. How would you incorporate risk and return in your financing decisions?

Sample Solution

Demand for and supply of money, government borrowing, inflation, Central Bank`s monetary policy objectives affect the interest rates. Typically, in a growing economy, money is in demand. Manufacturing sector companies and industries need to borrow money for their short-term and long-term needs to invest in production activities. But when an economy isn’t doing that well, companies avoid borrowing if the demand for their products is low. A very high inventory is detrimental, so they produce less. In effect, they borrow less, ergo less demand for money. Consumers also spend less as a bad economy could result in job loss. Other things remaining the same, higher the demand for money higher the interest rates.

In light of complaints towards consequentialism, utilitarianism has been recognized as rule-consequentialism and act-consequentialism by Richard Brandt.

Act consequentialism applies the head of utility dependent upon the situation to acts and their net utility.

Decide consequentialism expresses that a particular activity is ethically legitimate assuming it keeps a legitimate moral guideline and an ethical rule is legitimate if observing the ethical code could make more utility than different guidelines.

Act consequentialists decide not to observe a guideline in the event that they feel all the more prosperity can be accomplished by disregarding it. For instance, the customary consequentialism found in ‘The Ten Commandments’ which is outright, for example, “thou shalt not do x” not “thou shalt not do x besides in conditions x,y,z.” Even deontology expresses no exemptions like ‘lying is never right,’ even in situations where one could save a day to day existence by lying.

However ethical quality can be seen as abstract, contingent upon wants, act consequentialism makes moral decisions impartially evident when we follow it. Then, at that point, each choice about how we ought to act will just rely upon the genuine outcomes of the accessible choices.

Rawl contends act utilitarianism could permit wrong responses in moral cases that overlook equity.

For instance, act utilitarianism infers that on the off chance that an appointed authority can forestall riots that could cause numerous passings by condemning one blameless individual, then he ought to do that.

Act utility could prompt subverting essential trust. For example, in light of boosting prosperity assuming specialists took choices to utilize one people organs to save five others that would make individuals distrust parental figures. There would be no trust that individuals are submitting to rules if the comman man would simply settle on choices that permitted any sort of infringement of regulation or cheating for purpose of boosting great.

Bernard Williams contended consequentialism required unprejudiced nature which centers around results of activity and this prerequisite denies their very own person trustworthiness in light of the fact that the idea of utilitarianism doesn’t separate in an individual themselves achieving a result versus another person delivering a result.

Basically rule consequentialism demonstrates to expand utility in circumstances, for example, traffic rules. It would be more secure assuming everybody observed guidelines like ‘no alcoholic driving or speed limit.’ Hence adhering to guideline utility over act utility in such cases more secure. Act utility would give space for people to decide the best activity.

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