The objective of firms is to maximise the shareholders' wealth. By doing so, management should make...

 

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The objective of firms is to maximise the shareholders' wealth. By doing so, management should make the best decisions for its financing and investing to create value in shareholders interest. Thus, the information pertaining to firm's financial decisions should be incorporated into its stock price. As a junior fund manager, you are tasked to analyse the possible value of firms' information in your investments. Required: (a) You believe that both financing and investing decisions contain new information of firm value perceived by the investors. Thus, stock price reacts positively or negatively to it. List three decisions each for financing and investing of firms. (3 marks) (b) If you believe Capital Asset Pricing Model (CAPM) is true on pricing the risky securities, what would be the impact of firm's decisions on your investment value or strategy. (3 marks) (c) Hedge fund managers believe that event-driven investment strategy, i.e. announcements of firm's financing and investing decisions, could possibly generate abnormal or excess portfolio return. Do you agree with this statement and why? State your assumptions when necessary. (4 marks) The objective of firms is to maximise the shareholders' wealth. By doing so, management should make the best decisions for its financing and investing to create value in shareholders interest. Thus, the information pertaining to firm's financial decisions should be incorporated into its stock price. As a junior fund manager, you are tasked to analyse the possible value of firms' information in your investments. Required: (a) You believe that both financing and investing decisions contain new information of firm value perceived by the investors. Thus, stock price reacts positively or negatively to it. List three decisions each for financing and investing of firms. (3 marks) (b) If you believe Capital Asset Pricing Model (CAPM) is true on pricing the risky securities, what would be the impact of firm's decisions on your investment value or strategy. (3 marks) (c) Hedge fund managers believe that event-driven investment strategy, i.e. announcements of firm's financing and investing decisions, could possibly generate abnormal or excess portfolio return. Do you agree with this statement and why? State your assumptions when necessary. (4 marks)

Answer rating: 100% (QA)

a Three financing decisions of a firm Issuing new equity or debt securities Repurchasing or retiring outstanding securities Choosing between different ... View the full answer