Exam 17: Security Valuation and Selection

Fundamental analysts attempt to find the intrinsic value of a firm by evaluating information contained in financial statements, industry reports, and economic forecasts.

Use the following financial data to 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.

When the economy is in a recession, by definition, all sectors of the economy must be experiencing a downturn, or contraction.

Technical analysts often are called chartists because they depend solely on charts and graphs to determine stock market trends.

Using the dividend discount model (DDM) to value common stock is relatively easy because it entails simply computing the present value of the future cash flows, or dividends, generated by the firm.

From an investor's standpoint, the purpose of financial statement analysis is to determine the attractiveness of an investment by identifying the strengths and weaknesses of the firm and projecting how the firm will do in the future.

Most investors would be wise to purchase the common stock of companies that are in the introductory stage of their industry life cycle because it is in this stage that firms offer high, safe returns to investors.

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

Acme Corporation stock currently sells for $22.08 per share.The last dividend paid was $1.00 per share.The next dividend will be paid in one year and is expected to be $1.50; the following year's dividend will be $2.50; and, in the third year dividends are expected to begin growing at a constant rate.If the appropriate discount rate for Acme is 20 percent, at what constant rate does the market expect dividends to grow in Year 3 and beyond?

To determine the appropriate P/E multiple for an individual firm simply take the average P/E multiple for the firm's industry and multiply it by the beta for the individual firm.