Why is the search for new profitable projects so important? ...

[Medesa]

Why is the search for new profitable projects so important?
 
  What will be an ideal response?

Question 2

Ride World has estimated the market value of its assets to be 1,250,000. What is the value of Ride World's common stock if it has 900,000 in liabilities, 50,000 in preferred stock, and 7,500 shares of common stock outstanding?
 
  What will be an ideal response?

[Loise Hard]

Answer to Question 1

Without question it is easier to evaluate profitable projects or investments in fixed assets, a process referred to as
capital budgeting, than it is to find them. In competitive markets, generating ideas for profitable projects is extremely
difficult. The competition is brisk for new profitable projects, and once they have been uncovered, competitors
generally rush in, pushing down prices and profits. For this reason a firm must have a systematic strategy for
generating capital-budgeting projects based on these ideas. Without this flow of new projects and ideas, the firm
cannot grow or even survive for long. Instead, it will be forced to live off the profits from existing projects with limited
lives. So where do these ideas come from for new products, or for ways to improve existing products or make them
more profitable? The answer is from inside the firmfrom everywhere inside the firm, in fact.

Answer to Question 2

Stock price = (1,250,000 - 900,000 - 50,000 ) / 7,500 = 40