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

The authors of the text prefer forward valuation ratios as opposed to historical valuation variables in relative valuation methods.

_____ tend to outperform during an economic slowdown.

In the present value of operating free cash flow technique, the firm's operating free cash flow to the firm is discounted at the firm's weighted average cost of capital (WACC).

Which of the following series does NOT include the long-leading index?

The dividend payout ratio for the aggregate market is 50 percent, the required rate of return is 16 percent, and the expected growth rate for dividends is 6 percent. Compute the current earnings multiple.

Coincident indicators include economic time series that have peaks and troughs that roughly occur at the same time as the peaks and troughs of overall economic activity.

Which of the following factors does NOT indicate market liquidity?

Excess liquidity is defined as

USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S) The Valentine Company currently has a 14 percent annual growth rate, while the market average is 4 percent. The market multiple is 15. -Refer to Exhibit 9.13. Determine the P/E ratio for the Valentine Company assuming Valentine can maintain its superior growth rate for the next five years.

If, for the S&P Industrials Index, the profit margin was 0.30 and the equity turnover ratio was 11, the ROE would be

USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S) Assume that the dividend payout ratio will be 45 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 7 percent and investors will require a 16 percent return. The return on equity will be 14 percent. -Refer to Exhibit 9.4. What is your expectation of the market P/E ratio?

According to Peter Lynch, a favorable attribute of a firm that may result in favorable stock performance is when a firm buys back its shares.

Which of the following is NOT a determinant of the aggregate gross profit margin?

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 the expected sustainable growth rate?

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. To what price will the market rise if the earnings expectation is $32.00?

Based on the information provided, calculate the intrinsic value in 2010 of a share of INV Corp. using the Present Value of Earnings Model (infinite holding period). For 2010 net income was $250,000, total debt was $50,000, and there were 206,263 shares outstanding. The required rate of return is 12 percent, and the estimated growth rate in earnings is 5.5 percent.

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 EBIT for the year 2020.

The dividend payout ratio for the aggregate market is 65 percent, the required rate of return is 12 percent, and the expected growth rate for dividends is 6 percent. Compute the current earnings multiple.

Porter contends that ____ and ____ are two important competitive strategies.

Changes in the dividend payout ratio are positively related to changes in the retention rate.