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

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 your expectation of the market P/E ratio?

USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S) As an economist for a research firm, you are forecasting the market P/E ratio using the dividend discount model. Because the economy has been slow for 5 years, you expect the dividend-payout ratio to be 55 percent. Long-term government bond rates are at 6 percent, and the equity risk premium is estimated to be 3 percent. Return on equity (ROE) is estimated to be 11 percent. -Refer to Exhibit 9.8. What is the expected growth rate?

A cyclical company's sales and earnings are heavily influenced by aggregate business activity.

A speculative stock possesses a ____ probability of ____ return and is currently ____.

Which of the following is NOT normally associated with cyclical indicators?

USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S) Assume that the dividend payout ratio will be 75 percent when the rate on long-term government bonds falls to 8 percent. Because investors are becoming more risk averse, the equity risk premium will rise to 7 percent and investors will require a 15 percent return. The return on equity will be 12 percent. -Refer to Exhibit 9.2. What is your expectation of the market P/E ratio?

The expected rate of return on Rooter Industries is 1.5 times the 16 percent expected rate of return from the market. What is Research's beta if the risk-free rate is 8 percent?

Which of the following is NOT considered a favorable attribute of firms by Peter Lynch?

Dividend growth is positively related to the return on equity.

Toward the end of a recession, which stocks often recover first as their earnings rise?

The sustainable growth rate can be calculated by taking the dividend payout ratio time return on equity (ROE).

Operating free cash flow and free cash flow to equity are equivalent cash flow concepts.

An increase in the required rate of return k will increase the P/E ratio.

The correlation of stock market returns between the U.S. and Japan is ____ and ____.

Which of the following are NOT cyclical indicators?

A firm has a current price of $40 a share, an expected growth rate of 11 percent and expected dividend per share (D1) of $2. Given its risk, you have a required rate of return for it of 12 percent. Your expected rate of return and investment decision is as follows:

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. Estimate the firm's growth rate in sales per share.

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 year 2020 EBITDA per share.

What is the implied growth duration of Freed Industries given the following?

Which of the following variables was NOT considered significant in explaining stock returns?