Exam 12: Macroanalysis and Microvaluation of the Stock Market

Exhibit 12.9 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 12.9.Starting with the initial conditions,you expect the retention ratio to be constant,the rate of inflation to decline by 2 percent,and the growth rate to decline by 1 percent.What is the expected P/E?

Exhibit 12.8 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%. Long-term government bond rates are at 6% and the equity risk premium is estimated to be 3%. Return on equity (ROE) is estimated to be 11%. -Refer to Exhibit 12.8.What is the expected growth rate?

Exhibit 12.2 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. Since 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 12.2.What is your expectation of the market P/E ratio?

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

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

There are three techniques available to help an investor make a market decision.Which of the following is not such an analysis technique?

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 per share EBIT for the year 2004.

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.Obtain an estimate of the per share depreciation charge for the year 2004.

Which of the following economic series is not included in the National Bureau of Economic Research (NBER)leading indicator group?

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

Interest rate spread,10-year Treasury bonds less federal funds,is listed as a lagging indicator in the National Bureau of Economic Research (NBER).

Exhibit 12.9 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 12.9.What is the current earnings multiplier?

Exhibit 12.2 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. Since 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 12.2.What is the expected sustainable growth rate?

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

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

Exhibit 12.1 Use the Information Below for the Following Problem(S) Assume that the dividend payout ratio will be 65 percent when the rate on long-term government bonds falls to 8 percent. Since 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 12.1.What is the expected sustainable 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.The firm's sustainable growth rate is

The growth rate will most likely increase if the:

Which of the following is not a factor under the Free Cash Flow to Equity (FCFE)Model?

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 the expected sustainable growth rate?