Question

In: Operations Management

Describe equity investment and the risks of these investments for both the investor and the capital...

Describe equity investment and the risks of these investments for both the investor and the capital structure.

Solutions

Expert Solution

An equity investment is a cash that is put resources into an organization by buying portions of that organization in the securities exchange. These offers are commonly exchanged on a stock trade. Value financial specialists buy portions of an organization with the desire that they will ascend in an incentive as capital additions, or potentially produce capital profits. In case that equity investment ascends in value, the financial specialist would get the money related contrast in case that they sold their offers, or if the organization's advantages are exchanged and every one of its commitments is met. Values can fortify a portfolio's benefit distribution by including enhancement.

While there are numerous potential advantages to putting resources into equity, similar to all ventures, there are chances also. Market dangers sway value speculations legitimately. Stocks will regularly rise or fall in esteem dependent on showcase powers. Therefore, speculators can lose a few or the entirety of their venture because of market chance.

Risks

  • Credit hazard: an organization could be not able to pay its obligation.
  • Outside money hazard: an organization's worth could change due to changes in universal money estimation standards
  • Liquidity chance: Lack of meeting obligation commitments by the organizations
  • Political hazard: an organization's profits could endure due to a nation's political changes or insecurity.
  • Financial fixation hazard: an organization's worth may drop since it is gathered in an individual nation, element, segment (tying up its assets in one place). Due to the drop of this factor, the organization will get lopsidedly down
  • Expansion chance: an organization's worth could drop since it's harmed by rising swelling, along these lines weakening its value.

Related Solutions

When the equity method of accounting for investments is used by the investor, the investment account...
When the equity method of accounting for investments is used by the investor, the investment account is increased when:  A cash dividend is received from the investee.       The investee reports a net income for the year.       The investor records additional depreciation related to the investment.       The investee reports a net loss for the year.Assume that, on 1/1/06, Matsui Co. paid $1,200,000 for its investment in 60,000 shares of Yankee Inc. Further, assume that Yankee has 200,000 total shares of stock issued. The book...
Describe the components of the capital and financial accounts: Direct investment & portfolio investments.
Describe the components of the capital and financial accounts: Direct investment & portfolio investments.
Consider two $60,000 investments – call them Investment A and Investment B. Both investments will earn...
Consider two $60,000 investments – call them Investment A and Investment B. Both investments will earn $5,000 with a probability of 0.5 and $1,000 with a probability of 0.5. Investment A will use 100% equity financing (issuing stocks). Investment B will get $30,000 through issuing stocks and $30,000 through issuing bonds. Investment B must pay 4% interest on the bonds. a. Calculate the expected returns on equity (returns after interest payments divided by the amount of equity) for Investment A...
An institutional investor has 45% of their assets in private investments – private equity and private...
An institutional investor has 45% of their assets in private investments – private equity and private debt. These investments do not trade daily and do not have daily pricing. (Buying and selling these investments is somewhat difficult.) This allocation has allowed them to achieve top performance over the past decade. How is this a challenge to managing their rebalance policy if there is a substantial recession? How could this help or hurt them?
Explain what factors determine investment classification between the categories: Minority Passive Investments, Equity Investments and Investments...
Explain what factors determine investment classification between the categories: Minority Passive Investments, Equity Investments and Investments requiring consolidation. Explain the characteristics of the following investment classifications: Held-to-maturity, trading securit
70 – When the equity method of accounting for investment is used by the investor, the...
70 – When the equity method of accounting for investment is used by the investor, the investment account A cash dividend is received from the investee The investee reports net income for the year The investor records additional depreciation related to the investment The investee reports a net loss for the year. 71- Which of the following investment securities held by Bogey Inc, are not reported at fair value in its balance sheet? Debt securities held as available for sale...
1. How should an investor, applying the “equity method” of accounting for an investment, recognize equity...
1. How should an investor, applying the “equity method” of accounting for an investment, recognize equity method earnings, losses, and dividends declared by an investee? Cite FASB codification to support your answer. 2. Please explain under what circumstances that an investor may not be able to use equity method to account for his investments even though the investor owns more than 20% interest in the investee? Cite FASB codification to support your answer. (Tips: significant influence over an investee).
When should an investor, applying the “equity method” of accounting for an investment, recognize equity method...
When should an investor, applying the “equity method” of accounting for an investment, recognize equity method income—in the period the investee reports earnings, or in the period the investee declares a dividend?
Use investments to explain risk. Outline, with a short description, the 4 types of investment risks.
Use investments to explain risk. Outline, with a short description, the 4 types of investment risks.
Passive Equity Investment Portfolio Practice Problem Martin Company has a portfolio of passive equity investments with...
Passive Equity Investment Portfolio Practice Problem Martin Company has a portfolio of passive equity investments with a cost basis of $34,600 and a fair value of $41,650 on December 31, 2015. Martin Company sells $5,300 (cost) of equity investments on April 1, 2016 for $6,200. Martin Company purchases additional equity investments for $7,125 on August 10, 2016. On November 30, 2016 Martin Company receives $1,350 in dividends from its equity investments. The fair value of Martin’s equity investments is $40,575...
ADVERTISEMENT
ADVERTISEMENT
ADVERTISEMENT