Exam 17: Security Valuation and Selection

Since its inception five years ago, Companioni Gyms has not paid a dividend to its common stockholders, and it does not expect to pay a dividend for the next five years.Beginning six years from today, however, Companioni Gyms expects to pay a $2 dividend, which, from that point on, will increase by 10 percent per year forever.Stocks with similar risks have a required rate of return equal to 15 percent.What should be the market price of Companioni's common stock?

The practice of evaluating the information contained in financial statements, industry reports, and economic factors to determine the intrinsic value of a firm is called

Using the following financial data, determine the maximum dividends per share that can be paid to stockholders before the firm's value would be threatened.Base your answer on the economic value added model.

The dividend discount model (DDM) cannot be used to value the stock of a company that has never paid a dividend and does not expect to pay a dividend in the near term.

What are the stages of a typical industry life cycle?

Ace Incorporated has just paid a dividend of $4.00 per share.They have a retention ratio of 20 percent.They have a P/E ratio of 14.What should be the current price of the stock?

Ace Fly Rod Company expects the next dividend it pays, which will be in one year, to be $3.In the following year, the dividend is expected to be $4.50, and then the dividends are expected to grow at 10 percent annually thereafter.The appropriate discount rate for the company is 18 percent.What should be the market price of the stock?

Economists define a recession as a contraction in the economy in at least three out of the last five quarters.

Using the following financial data, determine the maximum total dividends that can be paid to stockholders before the firm's value would be threatened.Base your answer on the economic value added model.

A business cycle is the measure of all the goods and services produced in the economy during a specific time period.

If the stock market is semi-strong efficient, which of the following statements is correct?

Which of the following measures is included in the index of coincident indicators?

When the economy is in a recession, the Federal Reserve generally attempts to increase business activity by easing credit via lower interest rates, which is accomplished by decreasing reserves (money supply).

If security markets were truly strong-form efficient, you would never be able to realize a rate of return on a security greater than the marginal investor's expected (or required) rate of return.

Financial statement analysis should be included in investment analysis because

Investments professionals agree that individuals should be disciplined with their investment strategy.Their advice would be: "don't change approaches just because results aren't immediate."

Which of the following measures is included in the index of leading indicators?

Even though industries might be at different stages in their industry life cycle and the progress of their paces vary, all industries will eventually reach the mature stage.

The Dow Theory states that as long as the Dow Jones Industrial Average and the Dow Jones Transportation Average move in the same direction, the market will reverse its current trend.

Government spending, which is primarily supported by the government's ability to tax individuals and businesses, is called ____.