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1. What information is contained in the PE ratio

What information is contained in the PE ratio?

A company’s P/E ratio is the ratio of its current share price to its earnings

     Per share (eps).

     The ratio is an indicator of the growth that the market expects from the share:

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2. Explain the expected financial risks and business risks involved in a start up business

Explain the expected financial  risks and business risks involved in a start-up business

      In a startup business: Business risk  is Very high while the Financial risk  is Very low

     This high level of business risk means that the associated financial risk should be kept as low as possible during this period. Thus equity funding is most       appropriate, but even this equity investment may not be attractive to all potential investors.

         

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3. Explain the financial risks and business risks of a mature company

Explain the financial risks and business risks of a mature company.

 

In a mature company:

Business risk  is Medium

Financial risk  is Medium

the level of business risk has reduced again as another development phase has now been successfully completed; the company should enter the maturity stage with a good relative market share as a result of its investment in marketing during the growth stage. The critical business risks remaining relate to the duration of this stable, maturity stage and whether the company can maintain its strong market share, on a financially attractive basis, throughout this period

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4. Discuss the possible sources of financing of start-up business

Discuss the possible sources of financing of start-up business

 

Line credit: is an arrangement between a financial institution, usually a bank, and a customer that establishes a maximum loan balance that the lender permits the borrower to access or maintain.

Loans from traditional lending institutions I.e. banks

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5. Conflict of interest usually occurs between managers and shareholders in the following ways:

Conflict of interest usually occurs between managers and shareholders in the following ways

 

Managers may not work hard to maximize shareholder’s wealth if they perceive that they will not share in the benefit of their labour. 

 Managers may award themselves huge salaries and other benefits more than what

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