Exam 17: Security Valuation and Selection

In general, financial statement analysis involves a comparison of a firm's operating performance and financial position with that of other firms in the same line of business and can be used to form expectations about the firm's future cash flow distributions.

Market breadth indicators used by technical analysts provide a good indication of the "mood," or psychology, of the market.

When there is deficit spending in the United States, the amount of goods and services that is imported exceed the amount that is exported.

Industries comprised of companies that tend to be directly related to business cycles are generally referred to as defensive industries.

Which of the following economic indicators is not considered a leading indicator?

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.

Beefcake Burgers' stock has a current market value of $80.65.The company just paid a dividend equal to $3.50 per share, which is expected to grow at a constant rate of 6 percent forever into the future.What is the rate of return required by Beefcake's marginal investors?

Candy Apple Cakes' stock has a current market value of $40.50.The company just paid a dividend equal to $1.50 per share, which is expected to grow at a constant rate forever into the future.If Candy Apple's marginal investors require a rate of return equal to 12 percent, what is the rate at which dividends are expected to grow in the future?

The dividend discount model (DDM) can only be used to value a company's stock if it is expected that the company will pay a dividend that grows at a constant rate in the future.

Price/earnings ratios are ____ for firms with ____ expected earnings and ____ expected required rates of return.

The basic concept behind the economic value added (EVA) valuation method is that the firm's value is dependent on how well it can cover the costs of its existing capital.

What is the expected stock price of company who has $5.00 earnings per share, a dividend payout ratio of 0.8, and a P/E ratio of 12?

The economic value added (EVA) valuation method might be the most attractive valuation method because it does not require estimation of unknown factors and it ties the value creation process to changes in a firm's capital structure and changes in a firm's efficiency.

Fundamental analysis attempts to determine the intrinsic value of stock by analyzing company conditions, industry conditions, and economic conditions.

F Minus Notes is a publicly traded company.The last dividend paid was $4 per share.Dividends are paid annually, and they are expected to increase 5 percent per year for the next five years, then increase 10 percent per year thereafter.The discount rate associated with F Minus Notes common stock is 20 percent.What should be the current price of F Minus Notes stock?

Individuals who prefer investments that offer current income (i.e., dividends) probably should purchase stocks that are in the mature stage of their industry life cycle.Such investors most likely would avoid companies that are in the introductory stage of their life cycle.

The means by which the Federal Reserve influences economic conditions in the United States is called ____.

Technical analysts would argue that the stock market is ____ form efficient.

Fundamental analysts primarily base their investment decisions on analyses of supply and demand relationships that influence trends in price movements in stocks and general financial market conditions.

Generally, composite indexes rather than individual indexes are used to indicate the general movement of the economy because combinations of multiple measures provide better gauges of the general pattern than individual measures that contain spurious movements that are difficult to interpret.