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    Trend Analysis for Investing in Stocks

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    1. If you were using trend analysis to analyze the desirability of investing in a stock, how would the growing degree of competition affect your analysis? (Consider the automobile industry, in particular.)

    2. How would the increasing globalization of a firm affect profitability analysis?

    3. How would the increasing globalization of a firm affect an analysis of the firm's risk/reward situation (diversification, foreign exchange, and political risk)?

    4. What are the weaknesses of a dividend growth evaluation model?

    5. Contrast the dividend growth evaluation model with the residual income valuation model.

    6. Why is historical basis the improper methodology for measuring the cost of capital in your capital budgeting analysis?

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    Solution Preview

    1. Trend of the stock for any company gets affect by an increase in competition because competition affects the profitability of the company and this in turn affects the stock price. As we know that the stock price of the company is dependent on the earning of the company that helps to increase the shareholders wealth. Increase in competition force companies to reduce there selling price and sell there product close to there cost. Here cost of the company also increases due to the competition. This decreases the net profit of the company and hence the trend of the share price gets affect with the earning of the company.

    2. Increase in globalization i.e. when a firm come out of its domestic economy, the risk associated with it increases. Among this risk, exchange rate fluctuation is the biggest risk that affects the ...

    Solution Summary

    The solution examines trend analysis for investing in stocks. The weaknesses of a dividend growth evaluation model is determined.