Last Week, Janus Plastics Announced That They Had Developed a New

question 106

Multiple Choice

Last week, Janus Plastics announced that they had developed a new plastic container that was stronger and more durable and also easier to recycle. In response to this announcement, Janus' stock price rose from $23 a share to a high of $36 a share and then settled back to $27 a share. This is an example of a(n) :

• A) over-reaction and correction.
• B) post-activity reaction.
• C) delayed reaction.
• D) pre-activity action.
• E) efficient market reaction.

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Definitions:

Capital Structure

The mix of a company's long-term debt, specific short-term debt, common equity, and preferred equity used to finance its overall operations and growth.

Stock Price

The cost of purchasing a share of a company's stock. The price at which a stock is traded on the market, representing the value investors assign to a company.

MM Model

The Modigliani-Miller theorem, proposing that in a perfect market, the value of a firm is unaffected by how it is financed, whether through debt or equity.

Financial Leverage

The use of borrowed funds with a fixed cost to enhance the potential return on investment.