Calculating Financial Ratios and Capital Budgeting

Question

1.    Explain why buying common stocks based on each of the following financial ratios would or would not be a good investment strategy:  (a) a low price/sales (P/S) ratio; (b) a high dividend yield; (c) a high risk premium, based on Treynor’s measure.    
2.    Briefly describe each of the following phases of the capital budgeting process: (a) identification phase; (b) evaluation phase; (c) control phase; and (d) and audit phase. (e) Would saving time by skipping one of the phases in the capital budgeting process be a costly financial mistake?  Explain.

Summary

These questions belong to Finance and they deal with financial ratios and capital budgeting process. The first question deals with financial ratios including price and sales ratio, high dividend yield, high risk premium, etc while the second question deals with the various processes in capital budgeting. The solution has more details.

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