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

USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S) You are using the free cash flow to equity (FCFE) technique to analyze the U.S. equity market. The beginning FCFE is $90, and the required rate of return is 10 percent. Free cash flows are expected to grow at a 10 percent rate for the next two years and then grow at a constant rate of 7 percent forever. -Compute the current earnings multiple if the dividend payout ratio for the aggregate market is 60 percent, the required rate of return is 11 percent, and the dividend growth rate is 8 percent.

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

If, for the S&P Industrials Index, the profit margin was .25 and the equity turnover ratio was 12, the ROE would be

One way to measure a company's intrinsic value is to divide the company's current dividends by the required return less the dividend growth rate.

Which of the following is NOTa factor under the Free Cash Flow to Equity (FCFE) Model?

A cyclical stock's rate of return is not expected to decline during an overall market decline.

What variables impact the Price/Sales ratio?

Given Gilbert's beta of 1.10 and a risk-free rate of 5 percent, what is the expected rate of return assuming a 10 percent market return?

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 Rollerball Corporation's Total Assets/Equity ratio.

Aggregate return on equity increases as

USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S) -Refer to Exhibit 9.10. In the listing above, which three factors influence the capital gain component of a growth company?

All of the following factors affect the required rate of return EXCEPT

A ____ stock possesses a high probability of low or negative rates of return and a low probability of normal or high rates of return.

If interest rates rise due to inflation, and expected cash flows to a firm rise, then you would expect stock prices to

USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S) You are using the free cash flow to equity (FCFE) technique to analyze the U.S. equity market. The beginning FCFE is $90, and the required rate of return is 10 percent. Free cash flows are expected to grow at a 10 percent rate for the next two years and then grow at a constant rate of 7 percent forever. -Refer to Exhibit 9.7. What would the estimated value of the U.S. market be today using the FCFE approach, if the growth rate was expected to be a constant 8 percent indefinitely, instead of the 10 percent and 7 percent estimates?

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. If the payout ratio changes to 50 percent, but there are no other changes, what will be the new P/E?

Which of the following statements concerning global company analysis is FALSE?

Which of the following is NOT considered in the price-earnings ratio technique?

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 per share interest rate charge for the year 2020.

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 capital for the firm.