Exam 17: Investment Analysis and Valuation Techniques

Factors that fundamentalists examine to determine future stock price movements include: I.Company conditions II.Industry conditions III.Economic & market conditions IV.Supply/demand relationships

The industry life cycle follows various stages of growth with respect to the product of competitive conditions within the industry.

A business cycle is the measure of all the goods and services produced in the economy during a specific time period.

All of the following variables must be estimated when using the dividend discount model for stock valuation except the

Acme Corporation stock currently sells for $22.08 per share.The last dividend paid was $1.00 per share.The next dividend will be paid in one year and is expected to be $1.50;the following year's dividend will be $2.50;and,in the third year dividends are expected to begin growing at a constant rate.If the appropriate discount rate for Acme is 20 percent,at what constant rate does the market expect dividends to grow in Year 3 and beyond?

Beefcake Burgers' stock has a current market value of $80.65.The company just paid a dividend equal to $3.50 per share,which is expected to grow at a constant rate of 6 percent forever into the future.What is the rate of return required by Beefcake's marginal investors?

If the financial markets are strong-form efficient,then stock analysis would be a waste of time because investors would not be able to earn abnormal returns,no matter how well the valuation models they use perform.

Industries that tend to be directly related to business cycles such that they perform best during expansions and worst during contractions are called ____.

What is the expected stock price of company who has $5.00 earnings per share,a dividend payout ratio of 0.8,and a P/E ratio of 12?

Price/earnings ratios are ____ for firms with ____ expected earnings and ____ expected required rates of return.

The economic value added (EVA)valuation method might be the most attractive valuation method because it does not require estimation of unknown factors and it ties the value creation process to changes in a firm's capital structure and changes in a firm's efficiency.

The dividend discount model (DDM)cannot be used to value the stock of a company that has never paid a dividend and does not expect to pay a dividend in the near term.

The value of any asset can be described as the present value of the cash expected to be generated by the asset during its life.

Investors who search for "value" stocks are trying to find stocks that are mispriced in the markets.

Because financial statement analysis is based on examination of accounting statements,which often do not represent economic earnings,they should not be included in investment analysis.

Wheathouse Bakery just paid a dividend of $2.50.They expect the dividends to grow at 15 percent per year for next three years,and then they expect the dividends to remain constant forever.The appropriate discount rate for this firm is 20 percent.What should be the current market price of the stock?

Titanium World Inc. ,which is a firm that makes specialized golf clubs,plans to pay a dividend of $2 per share at the end of this year;the following year's dividend is expected to be $3 per share;the dividend the year after is expected to be $5;and,after that point,dividends should increase at a constant rate of 10 percent each year forever.The appropriate discount rate for Titanium World is 15 percent.What is the per share value of Titanium World's stock?

The dividend discount model (DDM)can only be used to value a company's stock if it is expected that the company will pay a dividend that grows at a constant rate in the future.

Investment professionals probably would recommend that an investor who likes to gamble should have a portfolio that includes only speculative securities such as options and futures,interest-rate swaps,and so forth.

Ace Fly Rod Company expects the next dividend it pays,which will be in one year,to be $3.In the following year,the dividend is expected to be $4.50,and then the dividends are expected to grow at 10 percent annually thereafter.The appropriate discount rate for the company is 18 percent.What should be the market price of the stock?