Question

a) You are the manager of a publicly traded corporation. Many of your firm's investors wish to live for today and thus discount the future quite heavily. What projects should you invest in to keep these investors happy?

            b) When the Coca-Cola Corporation was considering whether to sell Coke II, should they have taken into consideration the projected lost sales in Coke Classic?

            c) Why use an asset beta rather than standard deviation to measure risk?

Answer 1

A) projects I would likely to invest in order to keep the investors happy because investors are trying to discount the future of the company at the present very aggressively so I would be liking to invest into such projects which will be providing with instant cash flows and these projects are generating hi benefits in the short run so it would be leading to higher profits for the company as well as I will be trying to invest into continuous cash generating project because it will be leading into generation of high amount of cash which will have a higher amount of liquidity and reporting of profits in the short-term so I would be rather looking for profitability in the shorter than sustainability in the long run because investors are trying to invest into the company after judging upon cash generation ability of the company so I would be trying to make profits & cash flows in the short run in order to make my investors happy

B) Yes, they should have taken into consideration the projected lost sales of coke classic because these are opportunities cost and these opportunities cost must be taken into perspective before entering into a new project because opportunity cost are also reflecting a loss for the company and these losses for the company should be accounted in new project and hence it will provide us with a better reflection of whether to accept the new project are not..

C) Asset beta is reflective of the systematic risk and the volatility which is present in overall portfolio so asset beta would be providing us with the determination of movement of the Asset in respect to the overall market and it will represent the systematic risk embedded with investment into the asset as standard deviation is the overall risk which will also account for the form of specific risk and it is assumed that when there would be a well-diversified Portfolio, there would be no presence of systematic risk because diversification would be leading to elimination of the unsystematic risk and hence, only systematic risk will be present in the investment and systematic risk will be represented through The beta of the Asset.