Posts

Showing posts from 2020

Stock-Price Beta Estimation for Google, Inc. (Case Study)

Image
A.Describe some of the attributes of an ideal risk indicator for stock market investors.
B.On the Internet, go to Yahoo! Finance (or msnMoney) and download weekly price information over the past year (52 observations) for GOOG and the Nasdaq market.Then, enter this information in a spreadsheet like Table 16.6 and use these data to estimate GOOG=s beta.Describe any similarities or dissimilarities between your estimation results and the results depicted in Figure 16.8.
C.Estimates of stock-price beta are known to vary according to the time frame analyzed; length of the daily, weekly, monthly, or annual return period; choice of market index; bull or bear market environment; and other nonmarket risk factors.  Explain how such influence can undermine the usefulness of beta as a risk indicator.  Suggest practical solutions.

CASE STUDY SOLUTION

A.An ideal measure of stock market risk would be simple to derive, accurate and consistent from one year to another.With an ideal risk measure, investo…

Time Warner, Inc., Is Playing Games with Stockholders (Case Study)

Image
A.Was Paramount’s above-market offer for Time, Inc. consistent with the notion that the prevailing market price for common stock is an accurate reflection of the discounted net present value of future cash flows?Was management’s rejection of Paramount’s above-market offer for Time, Inc. consistent with the value-maximization concept?


B.Assume that a Time Warner shareholder could buy additional shares at a market price of $90 or participate in the company’s rights offering.Construct the payoff the matrix that corresponds to a $90 per share purchase decision versus a decision to participate in the rights offering with subsequent 100%, 80%, and 60% participation by all Time Warner shareholders.
C.Describe the secure game theory strategy for Time Warner shareholders.Was there a dominant strategy?
D.               Explain why the price of Time Warner common stock fell following the announcement of the company’s controversial rights offering.  Is such an offering in the best interests of share…

Market Structure Analysis at Columbia Drugstores, Inc. (Case Study)

Image
A.Describe the overall explanatory power of this regression model, as well as the relative importance of each continuous variable.
B.Based on the importance of the binary or dummy variable that indicates superstore competition, do superstores pose a serious threat to Columbia’s profitability?
C.               What factors might Columbia consider in developing an effective competitive strategy to combat the superstore influence?

CASE STUDY SOLUTION

A.The coefficient of determination R2 = 77.7% means that 77.7% of the total variation in Columbia’s profit‑margins can be explained by the regression model.This is a relatively high level of statistically significant explanation (F = 13.38) for a cross-section study such as this, suggesting that the model provides useful insight concerning the determinants of profitability.The standard error of the estimate (S.E.E. = 2.1931%) means that there is roughly a 95% chance that the actual profit margins for a given store will lie within the range of th…