Q 1.1 Last One Inc. had earnings per share of $2.52 in 2014, $3.43 in 2015 and $4.19 in 2016.Their net income increased from $951 million in 2014 to $1.17 billion in 2015 to $1.42 billion in 2016.Their net profit margin went from 6.9% to 7.7% to 8.6% in the three-year period. Their stock price has not increased similarly; in fact it has fallen recently.With only this information, explain why the stock price has declined?

Q 1.2 Explain why each of the following statements is false:

a.Maximizing return on invested capital (ROIC) leads directly to increasing market value added (MVA).

b.A firm should maximize its cost of capital since it measures the return to its suppliers of capital.

c.Because financial leverage increases the return to stockholders, it also leads to increasing a firm's MVA.

d.Capital structure is the main driver behind a firm's ability to increase MVA.