A firm recently made a large investment to upgrade technology. These improvements won't impact performance in...

A firm recently made a large investment to upgrade technology. These improvements won't impact performance in short run, but will reduce future costs significantly. What effect will this investment have on the firm's earnings per share this year? What effect might this investment have on the company's intrinsic value and stock price?

Solutions

Expert Solution

When an investment is made in large amount in future projects it will be leading to a deduction in the overall earning of the company in the short-run, because of its capital expansion but it can reduce the cost of the company in the long run, and increase the earning of the company in the long run, as these are capital budgeting decisions mostly for expansion and growth of the company.

This investment will decrease the Earning per share of the company, because this has led to an investment in the various projects of the company

This investment will increase the intrinsic value as well as stock price because investors are futuristic in nature and they will not discount the today's event and rather they will be discounting the futuristic event as this investment can lead to cost cutting and increase in the overall growth of the company, and intrinsic value of the share will also increase because it will be having a multiple effect on its books of accounts through cutting of cost and expansion of its books of accounts

jeff jeffy answered 1 year ago

Next > < Previous

Related Solutions

Edmund Corporation recently made a large investment to upgrade its technology. Although these improvements won’t have...

Edmund Corporation recently made a large investment to upgrade its technology. Although these improvements won’t have much of an impact on performance in the short run, they are expected to reduce future costs significantly. When would it be consistent with the manager’s fiduciary(maximize stockholder wealth) to accept the project? Further, can you describe a situation under which a manager may not accept the project even if it is consistent with his/her fiduciary responsibility? Make sure you clearly explain how it...

evince textile recently made a large investment to upgrade its production facilities by sacrificing dividend payment...

evince textile recently made a large investment to upgrade its production facilities by sacrificing dividend payment to its shareholders . although these improvements wont have much of an impact on performance in short run, they are expected to reduce future costs significantly. what impact will this investment have on evince textiles earnings per share? what impact might this investment have on the company s intrinsic value and stock price?

You work for a large investment management firm. The analysts with your firm have made the...

You work for a large investment management firm. The analysts with your firm have made the following forecasts for the returns of stock A and stock B: Probability Stock A Stock B very very weak 10.00% 65.00% -65.00% Weak 15.00% 30.00% -20.00% Moderate 30.00% 25.00% 35.00% strongly Moderate 20.00% 15.00% 40.00% Strong 15.00% -20.00% 45.00% Very Very Strong 10.00% -55.00% 65.00% 100.0% Answer the following questions: Calculate the expected returns, variance and the standard deviations for stock A and B....

1. Describe in your own words the impact advances in technology and improvements in medical education...

1. Describe in your own words the impact advances in technology and improvements in medical education had on the growth of U.S. hospitals and healthcare services from 1920 to the current period. (Chapter 2) Include references to: • The Baylor Plan – (healthcare insurance as a benefit of employment) • The Hill-Burton Act – (hospital construction in the U.S.) • Medicare Title XVIII and Medicaid Title XIX – (differences between the two programs) • TEFRA – (the change in hospital...

Foreign direct investment (FDI) is an investment made by a firm or individual in a country...

Foreign direct investment (FDI) is an investment made by a firm or individual in a country into business located in another country. FDI happens when an investor establishes a business in another country separate from his home country. Or a business owner could acquire foreign business assets, including establishing ownership or controlling interest in that company. Foreign direct investments are distinguished from portfolio investments in which investors can purchases equities of foreign-based companies. Foreign direct investments are commonly made in...

1. Think of a large or significant purchase you made recently. Was it a personal or...

1. Think of a large or significant purchase you made recently. Was it a personal or business purchase? Describe the process and/or steps you went through using the typical buying process model in Figure 8.3. 2. What is the difference between a suspect, a prospect, and a customer?

The proliferation of mobile devices has made a large impact on security in IT. IT professionals...

The proliferation of mobile devices has made a large impact on security in IT. IT professionals now have to be able to assess the security risks of an employee using their personal device, and whether or not that outweighs the benefits of such a policy. This is not only a security concern but a concern with compatibility as well. Many companies use proprietary software, and this software may not be compatible with all operating systems or device specifications that someone...

5. How do expenses and turnover impact mutual investment performance?

The impact of such frauds on the business firm, shareholders, society at large etc. Guidelines to...

The impact of such frauds on the business firm, shareholders, society at large etc. Guidelines to constantly check the system and the parties involved in accounting like employees of accounting department, cash handling department, external auditors, etc. to prevent such frauds in the future. (Making sure to connect it all with managerial accounting practices).

Q.The financial manager of a firm recently made a presentation. It showed that during the previous...

Q.The financial manager of a firm recently made a presentation. It showed that during the previous 16 quarters the company showed a profit 12 times and a loss 4 times. It is quite likely that the presentation would contain more information than whether the firm showed a profit or loss. Contemplate what that information might be.

Subjects