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

USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S) You are provided with the following information on Kayray Corporation. Your ultimate objective is to calculate the EVA for the firm. -Refer to Exhibit 9.15. Calculate the adjusted operating profits before taxes.

Which of the following economic series is NOT included in the Conference Board leading indicator group?

USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S) You are provided with the following information on Kayray Corporation. Your ultimate objective is to calculate the EVA for the firm. -Refer to Exhibit 9.15. Calculate the cash operating expenses for the firm.

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 increase by 2 percent, and the growth rate to increase by 1 percent. What is the expected P/E?

The economic factor assumed to be closely related to stock prices is productivity.

A stock with low systematic risk is considered to be a defensive stock.

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 level of Total Assets per share for the year 2020.

By definition growth companies have growth stocks.

What is the implied growth duration of Casey Industries given the following:

A firm's competitive strategy can be either defensive or offensive.

The best-known measure of relative value for common stock is the P/E ratio.

Future tax rates are difficult to estimate because they are politically influenced.

An inconsistency between a stock's P/E ratio and growth rate can be attributed to all of the following, EXCEPT

An undervalued stock is a growth stock.

The Pekay Company has an FCFE of $800. The FCFE is expected to grow by 7 percent next year. The cost of capital is 7 percent, and the level of debt is $4000. The number of shares outstanding is 700. Calculate the firm's share price.

The University of Michigan Consumer Sentiment Index is an example of a leading indicator.

The index of leading indicators includes all of the following, EXCEPT

USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S) Assume that the dividend payout ratio will be 55 percent when the rate on long-term government bonds falls to 9 percent. Because investors are becoming more risk averse, the equity risk premium will rise to 8 percent and investors will require a 7 percent return. The return on equity will be 13 percent. -Refer to Exhibit 9.3. What is the expected sustainable growth rate?

USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S) Assume that the dividend payout ratio will be 55 percent when the rate on long-term government bonds falls to 9 percent. Because investors are becoming more risk averse, the equity risk premium will rise to 8 percent and investors will require a 7 percent return. The return on equity will be 13 percent. -Refer to Exhibit 9.3. To what price will the market rise if the earnings expectation is $1.5?

Over the last 20 years, increases in the return on equity for the S&P Index have been associated with decreases in return of assets.