Author Question: Assume that you have 165,000 invested in a stock whose beta is 1.25, 85,000 invested in a stock ... (Read 81 times)

waynest · **on:** Jul 11, 2018

Assume that you have 165,000 invested in a stock whose beta is 1.25, 85,000 invested in a stock
whose beta is 2.35, and 235,000 invested in a stock whose beta is 1.11. What is the beta of your
portfolio?

A) 1.85 B) 1.57 C) 1.37 D) 2.01

Question 2

Consider the four components identified by the author in the sustainable growth equation. Which if nay of these components are heavily influenced by executive management?

What will be an ideal response?

vseab · **Reply #1 on:** Jul 11, 2018

Answer to Question 1

C

Answer to Question 2

Each of the four components is heavily influenced by management. The profit margin is a function of how well managers control expenses, the asset turnover is a function of which assets the manager has chosen to purchase for the firm and how well those assets generate revenues. Leverage is the third component and managers choose the firm's capital structure, i.e., how to pay for the assets. Finally, the retention ratio is also a management decision.

Company policy about how to control expenses, the types of assets to buy, how to fund those assets, and how to distribute earnings to shareholders are all determined by executive management.