Question 1

_____ tend to do well as the economy moves past recovery and into expansion.

Accepted Answer

A)  Financial stocks 
B)  Consumer durable goods 
C)  Capital goods 
D)  Cyclical companies 
E)  Consumer staples 
A)  Financial stocks 
B)  Consumer durable goods 
C)  Capital goods 
D)  Cyclical companies 
E)  Consumer staples

Question 2

Based on the information provided, calculate the intrinsic value in 2010 of a share of INV Corp. using the FCFF (free cash flow to the firm) model. For 2010 the FCFF was $30,000, total debt was $20,000, and there were 12000 shares outstanding. The required rate of return is 9 percent, and the estimated growth rate in FCFF is 6.5 percent.

Accepted Answer

A)  $104.83 
B)  $153.25 
C)  $112.50 
D)  $94.92 
E)  $80.45 
A)  $104.83 
B)  $153.25 
C)  $112.50 
D)  $94.92 
E)  $80.45

Question 3

The cyclical indicator approach to market analysis is based on the belief that the economy expands and contracts in a random manner.

Accepted Answer

A) True 
 B)False

Question 4

An overvalued stock is a non-growth stock.

Accepted Answer

A) True 
 B)False

Question 5

USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S)
Consider the following information that you propose to use to obtain an estimate of year 2004 EPS for the MacLog Company.
   In addition, a regression analysis indicates the following relationship between growth in sales per share for MacLog, and GDP growth is
%$\Delta$ Sales per share = 0.015 + 0.75(%$\Delta$ GDP)
-Refer to Exhibit 9.6. Obtain an estimate of the per share depreciation charge for the year 2020.

Accepted Answer

A)  $58.31 
B)  $102.35 
C)  $53.68 
D)  $75.93 
E)  $65.78 
A)  $58.31 
B)  $102.35 
C)  $53.68 
D)  $75.93 
E)  $65.78

Question 6

Given Gitech's beta of 1.55 and a risk-free rate of 8 percent, what is the expected rate of return assuming a 14 percent market return?

Accepted Answer

A)  12.4 percent 
B)  14.3 percent 
C)  17.3 percent 
D)  20.4 percent 
E)  29.7 percent 
A)  12.4 percent 
B)  14.3 percent 
C)  17.3 percent 
D)  20.4 percent 
E)  29.7 percent

Question 7

Given Birdchip's beta of 1.25 and a risk-free rate of 6 percent, what is the expected rate of return assuming a 12 percent market return?

Accepted Answer

A)  1 percent 
B)  10 percent 
C)  11 percent 
D)  12 percent 
E)  31 percent 
A)  1 percent 
B)  10 percent 
C)  11 percent 
D)  12 percent 
E)  31 percent

Question 8

USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S)
The aggregate market currently has a retention ratio of 60 percent, a required rate of return of 12 percent, and an expected growth rate for dividends of 4 percent.
-Refer to Exhibit 9.9. Starting with the initial conditions, you expect the retention ratio to be constant, the rate of inflation to decline by 2 percent, and the growth rate to decline by 1 percent. What is the expected P/E?

Accepted Answer

A)  8.57 
B)  8.00 
C)  6.67 
D)  5.71 
E)  5.00 
A)  8.57 
B)  8.00 
C)  6.67 
D)  5.71 
E)  5.00

Question 9

Which of the following is a market tenet of Warren Buffett?

Accepted Answer

A)  long-term prospects 
B)  resistance to institutional imperative 
C)  creation of one dollar of market value for every dollar retained 
D)  purchase at discount to intrinsic value 
E)  Product is not faddish. 
A)  long-term prospects 
B)  resistance to institutional imperative 
C)  creation of one dollar of market value for every dollar retained 
D)  purchase at discount to intrinsic value 
E)  Product is not faddish.

Question 10

USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S)
Consider the following information that you propose to use to obtain an estimate of year 2004 EPS for the MacLog Company.
   In addition, a regression analysis indicates the following relationship between growth in sales per share for MacLog, and GDP growth is
%$\Delta$ Sales per share = 0.015 + 0.75(%$\Delta$ GDP)
-Refer to Exhibit 9.6. Calculate the firm's EPS for the year 2020.

Accepted Answer

A)  $15.25 
B)  $14.66 
C)  $17.25 
D)  $12.56 
E)  $18.57 
A)  $15.25 
B)  $14.66 
C)  $17.25 
D)  $12.56 
E)  $18.57

Question 11

Estimating net profit margin directly is difficult because it is so volatile.

Accepted Answer

A) True 
 B)False

Question 12

Low-cost leadership and differentiation are two major competitive strategies suggested by Porter.

Accepted Answer

A) True 
 B)False

Question 13

Cyclical companies are firms in which

Accepted Answer

A)  sales, earnings, and cash flows are extremely uncertain and not necessarily related to the economy. 
B)  sales, earnings, and cash flows are likely to withstand changes caused by the economic environment. 
C)  sales, earnings, and cash flows are heavily influenced by aggregate business activity. 
D)  sales, earnings, and cash flows are growing exponentially. 
E)  None of these are correct. 
A)  sales, earnings, and cash flows are extremely uncertain and not necessarily related to the economy. 
B)  sales, earnings, and cash flows are likely to withstand changes caused by the economic environment. 
C)  sales, earnings, and cash flows are heavily influenced by aggregate business activity. 
D)  sales, earnings, and cash flows are growing exponentially. 
E)  None of these are correct.

Question 14

ABC Co. has paid annual dividends in the past five years of $.20, $.25, $.28, $.33, and $.36. Calculate the average growth rate of its dividends.

Accepted Answer

A)  1.16 percent 
B)  1.80 percent 
C)  12.47 percent 
D)  15.83 percent 
E)  17.25 percent 
A)  1.16 percent 
B)  1.80 percent 
C)  12.47 percent 
D)  15.83 percent 
E)  17.25 percent

Question 15

Which of the following statements concerning SWOT analysis is FALSE?

Accepted Answer

A)  Strengths are the factors that give the firm a comparative advantage in the marketplace. 
B)  Weaknesses result when the company has potentially exploitable advantages over other firms. 
C)  Opportunities are environmental factors that favor the firm. 
D)  Threats are environmental factors that can hinder the firm in achieving its goals. 
E)  None of these are correct (that is, all statements are true). 
A)  Strengths are the factors that give the firm a comparative advantage in the marketplace. 
B)  Weaknesses result when the company has potentially exploitable advantages over other firms. 
C)  Opportunities are environmental factors that favor the firm. 
D)  Threats are environmental factors that can hinder the firm in achieving its goals. 
E)  None of these are correct (that is, all statements are true).

Question 16

The Conference Board has derived the following indicator series in order to monitor business cycles:

Accepted Answer

A)  M2, leading, and lagging 
B)  leading, coincident, and consumer expectations 
C)  leading, coincident, and lagging 
D)  leading, coincident, and M 
E)  consumer expectations, leading, and lagging 
A)  M2, leading, and lagging 
B)  leading, coincident, and consumer expectations 
C)  leading, coincident, and lagging 
D)  leading, coincident, and M 
E)  consumer expectations, leading, and lagging

Question 17

Which of the following economic series are included in the Conference Board lagging indicator series?

Accepted Answer

A)  vendor performance 
B)  index of industrial production 
C)  manufacturing and trade sales data in 1992 dollars 
D)  manufacturers' new orders, non-defense capital goods 
E)  average duration of unemployment in weeks 
A)  vendor performance 
B)  index of industrial production 
C)  manufacturing and trade sales data in 1992 dollars 
D)  manufacturers' new orders, non-defense capital goods 
E)  average duration of unemployment in weeks

Question 18

Earnings growth and dividend yield will be impacted by GDP growth.

Accepted Answer

A) True 
 B)False

Question 19

The expected rate of return on Research Industries is twice the 12 percent expected rate of return from the market. What is Research's beta if the risk-free rate is 6 percent?

Accepted Answer

A)  2 
B)  3 
C)  4 
D)  5 
E)  6 
A)  2 
B)  3 
C)  4 
D)  5 
E)  6

Question 20

USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S)
The Rollerball Corporation's industry averages are as follows:
Net Profit Margin = 7.5%; Total Asset Turnover = 2.2; Total Assets/Equity = 2.0
Rollerball Corporation has the following financial statements for year ending 12/31/2008. (000's omitted)
    
-Refer to Exhibit 9.16. Calculate the sustainable growth rate for Rollerball Corporation.

Accepted Answer

A)  19.1% 
B)  22.7% 
C)  27.5% 
D)  52.5% 
E)  62.5% 
A)  19.1% 
B)  22.7% 
C)  27.5% 
D)  52.5% 
E)  62.5%

_____ tend to do well as the economy moves past recovery and into expansion.

The cyclical indicator approach to market analysis is based on the belief that the economy expands and contracts in a random manner.

An overvalued stock is a non-growth stock.

Given Gitech's beta of 1.55 and a risk-free rate of 8 percent, what is the expected rate of return assuming a 14 percent market return?

Given Birdchip's beta of 1.25 and a risk-free rate of 6 percent, what is the expected rate of return assuming a 12 percent market return?

Which of the following is a market tenet of Warren Buffett?

Estimating net profit margin directly is difficult because it is so volatile.

Low-cost leadership and differentiation are two major competitive strategies suggested by Porter.

Cyclical companies are firms in which

ABC Co. has paid annual dividends in the past five years of $.20, $.25, $.28, $.33, and $.36. Calculate the average growth rate of its dividends.

Which of the following statements concerning SWOT analysis is FALSE?

The Conference Board has derived the following indicator series in order to monitor business cycles:

Which of the following economic series are included in the Conference Board lagging indicator series?

Earnings growth and dividend yield will be impacted by GDP growth.

The expected rate of return on Research Industries is twice the 12 percent expected rate of return from the market. What is Research's beta if the risk-free rate is 6 percent?

The Investment Setting

The Investment Setting: Part A

Asset Allocation and Security Selection

Asset Allocation and Security Selection: Part A

Organization and Functioning of Securities Markets

Security Market Indexes and Index Funds

Efficient Capital Markets, Behavioral Finance, and Technical Analysis

An Introduction to Portfolio Management

An Introduction to Portfolio Management: Part A

An Introduction to Portfolio Management: Part B

Asset Pricing Models

Equity Valuation

The Practice of Fundamental Investing

Equity Portfolio Management Strategies

Bond Fundamentals and Valuation

Bond Analysis and Portfolio Management Strategies

An Introduction to Derivative Markets and Securities

Forward, Futures, and Swap Contracts

Option Contracts

Professional Money Management, Alternative Assets, and Industry Ethics

Evaluation of Portfolio Performance

Filters

Exam 9: The Top-Down Approach to Market, Industry, and Company Analysis

_____ tend to do well as the economy moves past recovery and into expansion.

The cyclical indicator approach to market analysis is based on the belief that the economy expands and contracts in a random manner.

An overvalued stock is a non-growth stock.

Given Gitech's beta of 1.55 and a risk-free rate of 8 percent, what is the expected rate of return assuming a 14 percent market return?

Given Birdchip's beta of 1.25 and a risk-free rate of 6 percent, what is the expected rate of return assuming a 12 percent market return?

Which of the following is a market tenet of Warren Buffett?

Estimating net profit margin directly is difficult because it is so volatile.

Low-cost leadership and differentiation are two major competitive strategies suggested by Porter.

Cyclical companies are firms in which

ABC Co. has paid annual dividends in the past five years of $.20, $.25, $.28, $.33, and $.36. Calculate the average growth rate of its dividends.

Which of the following statements concerning SWOT analysis is FALSE?

The Conference Board has derived the following indicator series in order to monitor business cycles:

Which of the following economic series are included in the Conference Board lagging indicator series?

Earnings growth and dividend yield will be impacted by GDP growth.

The expected rate of return on Research Industries is twice the 12 percent expected rate of return from the market. What is Research's beta if the risk-free rate is 6 percent?

The Investment Setting

The Investment Setting: Part A

Asset Allocation and Security Selection

Asset Allocation and Security Selection: Part A

Organization and Functioning of Securities Markets

Security Market Indexes and Index Funds

Efficient Capital Markets, Behavioral Finance, and Technical Analysis

An Introduction to Portfolio Management

An Introduction to Portfolio Management: Part A

An Introduction to Portfolio Management: Part B

Asset Pricing Models

Equity Valuation

The Practice of Fundamental Investing

Equity Portfolio Management Strategies

Bond Fundamentals and Valuation

Bond Analysis and Portfolio Management Strategies

An Introduction to Derivative Markets and Securities

Forward, Futures, and Swap Contracts

Option Contracts

Professional Money Management, Alternative Assets, and Industry Ethics

Evaluation of Portfolio Performance

Filters