Exam 12: Macroanalysis and Microvaluation of the Stock Market

Exhibit 12.6 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. GDP GDP growth Sales per share Operating profit margin Depreciation/Fixed Assets Fixed asset turnover Interest rate Total asset turnover Debt/Total assets Tax rate \ Year 2003 11,000 Billion \ 800 \ \ Estimated Year 2004 3.5\% 12\% 14\% 2 3.5\% 0.7 45\% 36\% \ In addition a regression analysis indicates the following relationship between growth in sales per share for MacLog and GDP growth is %D Sales per share = 0.015 + 0.75(%∆GDP) -Refer to Exhibit 12.6.Calculate the firm's EBT per share for the year 2004.

Exhibit 12.3 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. Since 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 12.3.What is your expectation of the market P/E ratio?

When estimating a major stock market value using the earnings multiplier approach near-term estimates of the required rate of return and growth rate are essential due to the impact of near-term events on cash flows.

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

The dividend payout ratio for the aggregate market is 65 percent,the required rate of return is 13 percent,and the expected growth rate for dividends is 8 percent.Compute the current earnings multiple.

In well developed economies,markets are not affected by changes in expected inflation.

Exhibit 12.5 Use the Information Below for the Following Problem(S) An analyst wishes to estimate the share price for Ashley Corporation. The following information is made available: Estimated profit margin = 15% Total asset turnover = 2 Financial leverage = 1.2 Estimated dividend payout ratio = 75% Required rate of return = 14% Estimated EPS = $2.50 -Refer to Exhibit 12.5.Calculate the firm's estimated share price.

An examination of the relationship between stock prices and the economy has shown that the relationship is

If a diffusion index for new orders went from 87 to 74 and then to 68,it would indicate ____ receipt of new orders and indicate a ____ in breadth and the possibility of a future ____ in the series.

Exhibit 12.7 Use the Information Below for the Following Problem(S) You are using the free cash flow to equity (FCFE) technique to analyze U.S. equity market. The beginning FCFE is $90 and the required rate of return is 10%. Free cash flows are expected to grow at a 10% rate for the next two years and then grow at a constant rate of 7% forever. -Refer to Exhibit 12.7.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% indefinitely,instead of the 10% and 7% estimates?

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

An analysis of U.S.equity markets using the cash flow techniques concludes that the market is not fully valued.

Which of the following is not a reason given for why forecaster are so often incorrect?

It is more important to estimate future earnings than the future earnings multiplier.

An increase in the retention ratio will cause a decrease in the growth rate.

Exhibit 12.5 Use the Information Below for the Following Problem(S) An analyst wishes to estimate the share price for Ashley Corporation. The following information is made available: Estimated profit margin = 15% Total asset turnover = 2 Financial leverage = 1.2 Estimated dividend payout ratio = 75% Required rate of return = 14% Estimated EPS = $2.50 -Refer to Exhibit 12.5.Calculate the firm's ROE.

A microeconomic estimate of the market earnings multiple requires an estimate for which of the following variables?

Leading indicators of the business cycle include economic series that reach peaks or troughs before the peaks and troughs of the overall economy.

Recent studies indicate that one can earn excess returns in the stock market by forecasting unanticipated changes in the money supply.

Which of the following is not an analytical measure used by the NBER to examine behavior within a series?