Corporate Finance for Dummies

Question: Discuss the findings of your analysis of the two companies (Beauty Ltd and Ugly Ltd) in your assignment 2 and recommend which company an investor should invest into and why? Answer: The following assignment makes a comparative analysis of Mayer and Allen in the context of the global market conditions . The stock is evaluated as per the financial state of the two companies existing at that point in time. . Standard Deviation As per the standard deviation of the stock , Ugly has the lowest standard deviation when compared to other market stocks in the organization . The asset portfolio of the business organization is diversified which shall assist the organization in achieving greater financial successes (Brealey, Myers, Marcus, 2012). However, the Beauty ltd is offering the lowest rate of return to the shareholders in an organization. In this regard , it can be said that the maximum return offered by the Ugly stock as per the existing market condition . In this regard, it can be said that the Beauty stock has pertinent recognition on the financial and operational strategies of a business enterprise. The standard deviation of a business enterprise represents the amount of risk present in the existing market condition (Berk, DeMarzo, Harford, 2012). In the case of Both Beauty and Ugly ltd , the standard deviation represents the actual financial condition of both companies. This shall assist the investors of the business organization to make informed financial decisions. Capital Asset Pricing Model According Nolop (2012), to the CAPM approach, the maximum return offered to the shareholders of the management is as per the Ugly stock . Therefore, the CAPM approach offers the maximum return to the shareholders of the management in an organization. According to the mathematical calculations , the Betty stock would be more suited to survive in a vulnerable market condition. The CAPM approach represents the amount of capital asset in a business organization . The CAPM approach evaluates the present market condition of the employee and therefore assists the organization in its growth According to Parrino, Kidwell, Bates (2012) , the CAPM model signifies the adequate financial capital present in a business organization . In this regard, it can be said that Ugly Limited consists shall have a maximum of capital present in the organization. The portfolio consists of a number of shares, debentures and bonds in a business organization. The portfolio beta is smaller when compared to the portfolio o f Ugly. However, the Ugly portfolio riskier than the portfolio of beauty ltd in the company . The portfolio of Ugly shall consist of a number of attributes those points towards a number of factors that would influence its selection amongst the two business enterprises. These consist of shares, debentures as well as bonds. Thus, it presents an essential finance condition of a business enterprise. Weighted Average Cost of Capital In the case of WACC, have increased in both cases. However, the cost of debt is more than the cost of equity in the organization, thereby, affecting the present financial condition of a business enterprise. The WACC is a pertinent indication towards a business organizations inherent financial strength. Monthly holding period The monthly holding period in the case of Ugly is greater than the financial condition of a business enterprise. As such, there are greater financial risks presented to the management of a business enterprise. According to Taillard (2013), a grater monthly holding period shall relate to a greater financial condition of business enterprise. Thus, this shall assist investors to have a greater time period to invest in the organization . This is in contrast to beauty Ltd which possesses a lesser monthly time period in a business organization . This reflects the financial condition of The Beauty ltd and has an important effect on the liabilities of a business organization . When considering the beta of a business organization , it can be said that the Ugly stock is more risky when compared to the beauty stock , since it has a comparitely higher value . When considering the weighted average method , the WACC is more higher in the case of Ugly Ltd than the Beauty ltd in a business organization . As such, this has a more important influence on the debt and equity of a business organization . Conclusion Considering the above factors, it a can be said that Ugly Limited shall be the most preferred company from the point of view of the investors . The Standard deviation and the CAPM approach indicate greater inherent financial strength in the organization. The Ugly stock offers the maximum return to the shareholders. The minimum return offered by the stock index theories. In this regard, it can be said that the ugly stock is far more important than the beauty stock in the business organization A particular stock evaluates the market condition of a specified stock is dependent on the market condition References Berk, J. (2013). Fundamentals of corporate finance. Toronto: Pearson. Berk, J., DeMarzo, P., Harford, J. (2012). Fundamentals of corporate finance. Boston: Prentice Hall. Brealey, R., Myers, S., Marcus, A. (2012). Fundamentals of corporate finance. New York: McGraw-Hill/Irwin. Nolop, B. (2012). The essential CFO. Hoboken, N.J.: John Wiley Sons. Parrino, R., Kidwell, D., Bates, T. (2012). Fundamentals of corporate finance. Hoboken, NJ: Wiley. Taillard, M. (2013). Corporate finance for dummies. Hoboken, N.J.: John Wiley Sons, Inc.