Question 1

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.
 $\begin{array}{lrr}
\begin{array}{l}
\
\
\text{GDP}\
\text{GDP growth}\
\text{Sales per share}\
\text{Operating profit margin}\
\text{Depreciation/Fixed Assets}\
\text{Fixed asset turnover}\
\text{Interest rate}\
\text{Total asset turnover}\
\text{Debt/Total assets}\
\text{Tax rate}\
\end{array}\
\begin{array}{r}
\
\text{Year 2003}\
\hline
\text{11,000 Billion}\\
 \$ 800 \\\\\\\\
\end{array}\
\begin{array}{r}
Estimated\
\text{Year 2004}\
\hline\ 3.5 \% \\
 12 \% \
 14 \% \
2\
3.5 \% \
 0.7 \
45 \% \
36\%
\end{array}\
\end{array}$ 
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.

Accepted Answer

A)   $13.29
B)   $27.89
C)   $18.75
D)   $19.63
E)   $22.91  E

Question 2

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?

Accepted Answer

A)   37.69
B)   24.92
C)   58.15
D)   55.02
E)   47.82 E

Question 3

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.

Accepted Answer

A) True 
 B)False  False

Question 4

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

Accepted Answer

A)   Vendor Performance.
B)   Index of industrial production.
C)   Manufacturing and trade sales data in 1992 dollars.
D)   Manufacturers' new orders, non-defense capital goods.
E)   Average duration of unemployment in weeks.

Question 5

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.

Accepted Answer

A)   7
B)   13
C)   4.61
D)   14.61
E)   None of the above

Question 6

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

Accepted Answer

A) True 
 B)False

Question 7

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.

Accepted Answer

A)   57.5
B)   37.5
C)   45
D)   32.75
E)   75

Question 8

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

Accepted Answer

A)   Weak, and that stock prices turn after the economy does.
B)   Nonexistent.
C)   Strong, and that stock prices turn after the economy does.
D)   Strong, and that stock prices turn before the economy does.
E)   Weak, and that stock prices turn before the economy does.

Question 9

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.

Accepted Answer

A)   Limited, strengthening, decline
B)   Limited, weakening, increase
C)   Widespread, strengthening, increase
D)   Widespread, weakening, decline
E)   Widespread, weakening, increase

Question 10

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?

Accepted Answer

A)   4,500
B)   4,728
C)   4,860
D)   4,923
E)   5,042

Question 11

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

Accepted Answer

A) True 
 B)False

Question 12

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

Accepted Answer

A) True 
 B)False

Question 13

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

Accepted Answer

A)   There is a temptation for economic forecasters to stay fairly close to the "norm," that is, "group think."
B)   Many analysts are simply too short-sighted.
C)   Economists and economic forecaster often suffer from information overload.
D)   Some economic forecasters are too broad-minded, trying to include a number of ideas in their forecasts.
E)   None of the above (that is, all are reasons cited for why forecasters are often incorrect)

Question 14

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

Accepted Answer

A) True 
 B)False

Question 15

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

Accepted Answer

A) True 
 B)False

Question 16

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.

Accepted Answer

A)   36%
B)   25%
C)   15%
D)   10%
E)   8%

Question 17

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

Accepted Answer

A)   Dividend payout ratio
B)   Return on equity
C)   Real RFR
D)   All of the above
E)   None of the above

Question 18

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

Accepted Answer

A) True 
 B)False

Question 19

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

Accepted Answer

A) True 
 B)False

Question 20

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

Accepted Answer

A)   Diffusion indexes
B)   Rates of change
C)   Direction of change
D)   Ratios among series
E)   Comparison with previous cycles

Exam 12: Macroanalysis and Microvaluation of the Stock Market

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.

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.

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.

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?