Security Analysis——MULTIPLE CHOICE PROBLEMS.doc

MULTIPLE CHOICE PROBLEMS (c) 1 If, for the S&P 400, the profit margin was 0.35 and the equity turnover ratio was 10, the ROE would be: a) 0.035% b) 2.857% c) 3.500% d) 28.57% e) 35.00% (b) 2 If, for the S&P 400, the profit margin was 0.30 and the equity turnover ratio was 11, the ROE would be: a) 0.033% b) 3.300% c) 33.00% d) 36.70% e) 333.00% (c) 3 If, for the S&P 400, the profit margin was .25 and the equity turnover ratio was 12, the ROE would be: a) 0.83% b) 0.48% c) 3.00% d) 30.00% e) 48.00% (b) 4 If, for the S&P 400, the profit margin was 0.20 and the equity turnover ratio was 13, the ROE would be: a) 0.026% b) 2.600% c) 6.500% d) 26.00% e) 65.00% (c) 5 The dividend payout ratio for the aggregate market is 55 percent, the required rate of return is 15 percent, and the expected growth rate for dividends is 7 percent. Compute the current earnings multiple. a) 3.93 b) 78.6 c) 6.88 d) 39.3 e) None of the above (b) 6 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. a) 7 b) 13 c) 4.61 d) 14.61 e) None of the above (d) 7 The dividend payout ratio for the aggregate market is 65 percent, the required rate of return is 12 percent, and the expected growth rate for dividends is 6 percent. Compute the current earnings multiple. a) 5.41 b) 16.25 c) 6.25 d) 10.83 e) None of the above (a) 8 The dividend payout ratio for the aggregate market is 50 percent, the required rate of return is 16 percent, and the expected growth rate for dividends is 6 percent. Compute the current earnings multiple. 13 - 4 a) 5 b) 2.81 c) 7.5 d) 4 e) None of the above USE THE FOLLOWING INFORMATION FOR THE NEXT THREE PROBLEMS 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. (b) 9 What is the expected sustainable growth rate? a) 2.80% b) 4.20% c) 5.25% d) 7.80% e) 9.75% (d) 10 What is your expectation of the market P/E ratio? a) 8.33 b) 5.33 c) 9.03 d) 6.02 e) 3.24 (b) 11 To what price will the market rise if the earnings expectation is $22.00 per share? a) $183.26 b) $132.41 c) $198.66 d) $71.28 e) $14.30 USE THE FOLLOWING INFORMATION FOR THE NEXT THREE PROBLEMS 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. (d) 12 What is the expected sustainable growth rate? a) 9.0% b) 7.2% c) 6.0% d) 3.0% e) 3.6% (b) 13 What is your expectation of the market P/E ratio? a) 3.92 b) 6.25 c) 6.67 d) 8.33 e) 12.00 (d) 14 To what price will the market rise if the earnings expectation is $32.00? a) $384.00 b) $266.56 c) $213.44 d) $200.00 e) $125.44 USE THE FOLLOWING INFORMATION FOR THE NEXT THREE PROBLEMS 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. (a) 15 What is the expected sustainable growth rate? a) 5.85 b) 7.15 c) 4.05 d) 6.75 e) 8.25 (e) 16 What is your expectation of the market P/E ratio? a) 37.69 b) 24.92 c) 58.15 d) 55.02 e) 47.82 (c) 17 To what price will the market rise if the earnings expectation is $1.5? a) $138.42 b) $90.36 c) $71.74 d) $105.30 e) $85.14 USE THE FOLLOWING INFORMATION FOR THE NEXT THREE PROBLEMS Assume that the dividend payout ratio will be 45 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 7 percent and investors will require a 16 percent return. The return on equity will be 14 percent. (e) 18 What is the expected sustainable growth rate? a) 4.95 b) 7.2 c) 8.8 d) 6.3 e) 7.7 (a) 19 What is your expectation of the market P/E ratio? a) 5.42 b) 7.14 c) 6.63 d) 6.25 e) 5.11 (c) 20 To what price will the market rise if the earnings expectation is $10.00? a) $71.40 b) $66.30 c) $54.20 d) $77.00 e) $51.10 USE THE FOLLOWING INFORMATION FOR THE NEXT FOUR PROBLEMS 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 (a) 21 Calculate the firms ROE a) 36% b) 25% c) 15% d) 10% e) 8% (c) 22 The firms sustainable growth rate is a) 15% b) 10% c) 9% d) 8% e) 7% (e) 23 Calculate the P/E multiple a) 35 b) 30 c) 25 d) 20 e) 15 (b) 24 Calculate the firms estimated share price a) 57.5 b) 37.5 c) 45 d) 32.75 e) 75 USE THE FOLLOWING INFORMATION FOR THE NEXT 11 PROBLEMS Consider the following information that you propose to use to obtain an estimate of year 2002 EPS for the MacLog Company. Year 2001 EstimatedYear 2002GDP 10,500 Billion GDP growth 1.5% Sales per share $875 Operating profit margin 12% Depreciation/Fixed Assets 14% Fixed asset turnover 2 Interest rate 5.25% Total asset turnover 0.7 Debt/Total assets 45% Tax rate 36% In addition a regression analysis indicates the following relationship between growth in sales per share for MacLog and GDP growth is % Sales per share = 0.015 + 0.75(% GDP) (c) 25 Calculate GDP for the year 2002 a) $10,500 billion b) $11,000 billion c) $10,657.5 billion d) $10,550.5 billion e) $11,025.75 billion (d) 26 Estimate the firms growth rate in sales per share a) 1.5% b) 2% c) 2.16% d) 2.63% e) 3.73% (a) 27 Estimate the firms sales per share for the year 2002 a) $898.01 b) $900.0 c) $885.03 d) $925 e) $850 (e) 28 Calculate the firms year 2002 EBITDA per share a) $95.05 b) $87.15 c) $102.56 d) $104.73 e) $107.76 (a) 29 Obtain an estimate of the per share depreciation charge for the year 2002 a) $62.86 b) $102.35 c) $53.68 d) $75.93 e) $65 (b) 30 Calculate the per share EBIT for the year 2002 a) $35 b) $45 c) $55 d) $65 e) $75 13 - 9 (d) 31 Calculate the firms level of Total Assets per share for the year 2002 a) $1050 b) $1065.67 c) $1213.58 d) $1282.87 e) $1385.77 (a) 32 Calculate the firms level of debt for the year 2002 a) $577.29 b) $600.75 c) $637.67 d) $485.98 e) $393.72 (a) 33 Calculate the per share interest rate charge for the year 2002 a) $30.31 b) $57.72 c) $60.07 d) $63.76 e) $48.59 (e) 34 Calculate the firms EBT per share for the year 2002 a) $13.29 b) $17.89 c) $18.75 d) $19.63 e) $14.59 (b) 35 Calculate the firms EPS for the year 2002 a) $5.25 b) $9.34 c) $7.25 d) $12.56 e) $8.57 USE THE FOLLOWING INFORMATION FOR THE NEXT 11 PROBLEMSAssume that you are an analyst for the U.S. autoparts industry. Consider the following information that you propose to use to obtain an estimate of year 2002 EPS for the U.S. Autoparts IndustryYear 2001 EstimatedYear 2002Personal consumption expenditures $6,800 billionPersonal consumption expenditures growth 1.5%Industry Sales per share $525Industry Operating profit margin 15%Industry Depreciation/Fixed Assets 8.25%Industry Fixed asset turnover 3Interest rate 6%Industry Total asset turnover 1.2Industry Debt/Total assets 45%Industry Tax rate 36%In addition a regression analysis indicates the following relationship between growth in industry sales per share and personal consumption expenditures (PCE) growth is% Sales per share = 0.02 + 1.5(% PCE)(c) 1 Calculate personal consumption expenditures for the year 2002a) $7,500 billionb) $7,000 billionc) $7140 billiond) $7,550.5 billione) $6,825.75 billion(d) 2 Estimate the industry growth rate in sales per sharea) 10.5%b) 11%c) 12.16%d) 9.5%e) 8.73%(a) 3 Estimate the industry sales per share for the year 2002a) $574.9b) $600.0c) $585.03d) $625e) $550(e) 4 Calculate the industry year 2002 EBITDA per sharea) $95.05b) $89.15c) $92.56d) $94.73e) $86.23(a) 5 Obtain an estimate of the per share depreciation charge for the year 2002a) $15.81b) $12.35c) $23.68d) $25.93e) $35(b) 6 Calculate the per share EBIT for the year 2002a) $95.33b) $70.42c) $85.56d) $95.89e) $75.32(d) 7 Calculate industry Total Assets per share for the year 2002a) $450b) $565.67c) $513.58d) $479.07e) $385.77(a) 8 Calculate industry level of debt for the year 2002a) $215.58b) $300.75c) $237.67d) $285.98e) $193.72(a) 9 Calculate the per share interest rate charge for the year 2002a) $12.93b) $17.72c) $10.07d) $13.76e) $18.59(e) 10 Calculate the industry EBT per share for the year 2002a) $53.29b) $67.89c) $68.75d) $59.63e) $57.49(b) 11 Calculate industry EPS for the year 2002a) $45.25b) $36.79c) $57.25d) $32.56e) $48.57(d) 1 What is the implied growth duration of Bowe Industries given the following: S&P 400 Bowe IndustriesP/E Ratios 10 25Average Growth (%) 5.0 15.0Dividend Yield .06 .02a) 3.2 yearsb) 6.6 yearsc) 9.6 yearsd) 17.2 yearse) 18.6 years(b) 2 What is the implied growth duration of Casey Industries given the following: S&P 400 Casey IndustriesP/E Ratios 15 20Average Growth (%) 10.0 15.0Dividend Yield .04 .06a) 3.2 yearsb) 4.8 yearsc) 9.6 yearsd) 13.2 yearse) 18.6 years(c) 3 What is the implied growth duration of Jones Industries given the following: S&P 400 Jones IndustriesP/E Ratios 12 15Average Growth (%) 6.0 16.0Dividend Yield .05 .03a) 1.2 yearsb) 4.9 yearsc) 3.2 yearsd) 12.9 yearse) 15.2 years(a) 4 What is the implied growth duration of Freed Industries given the following: S&P 400 Freed IndustriesP/E Ratios 19 22Average Growth (%) 11.0 16.0Dividend Yield .06 .08a) 2.5 yearsb) 1.3 yearsc) 5.0 yearsd) 4.5 yearse) 3.5 years(e) 5 What is the implied growth duration of Howard Industries given the following: S&P 400 Howard IndustriesP/E Ratios 14 19Average Growth (%) 6.0 12.0Dividend Yield .07 .04a) 1.5 yearsb) 6.8 yearsc) 2.6 yearsd) 9.4 yearse) 11.6 yearsUSE THE FOLLOWING INFORMATION FOR THE NEXT TWO PROBLEMSModular Industries currently has a 16% annual growth rate while the market average is 6 percent. The market multiple is 10.(e) 6 Determine the justified P/E ratio for Modular Industries assuming Modular can maintain its superior growth rate for the next 5 years.a) 6.4b) 13.1c) 16.5d) 23.8e) 15.7(b) 7 Determine the P/E ratio for Modular Industries assuming Modular can maintain its superior growth rate for the next 8 years.a) 6.4b) 20.5c) 16.5d) 23.8e) 29.5USE THE FOLLOWING INFORMATION FOR THE NEXT TWO PROBLEMSHarcourt Industries currently has an 18% annual growth rate while the market average is 8 percent. The market multiple is 12.(e) 8 Determine the justified P/E ratio for Harcourt Industries assuming Harcourt can maintain its superior growth rate for the next 9 years.a) 5.98b) 13.13c) 21.20d) 58.68e) 26.65(c) 9 Determine the P/E ratio for Harcourt Industries assuming Harcourt can maintain its superior growth rate for the next 3 years.a) 4.25b) 12.50c) 15.67d) 30.10e) 42.80USE THE FOLLOWING INFORMATION FOR THE NEXT TWO PROBLEMSThe Valentine Company currently has a 14% annual growth rate while the market average is 4 percent. The market multiple is 15.(e) 10 Determine the justified P/E ratio for the Valentine Company assuming Valentine can maintain its superior growth rate for the next 10 years.a) 3.0b) 9.2c) 16.6d) 28.6e) 37.6(a) 11 Determine the P/E ratio for the Valentine Company assuming Valentine can maintain its superior growth rate for the next 5 years.a) 23.7b) 16.4c) 15.3d) 8.3e) 3.8(c) 12 Given Gitechs beta of 1.55 and a risk free rate of 8 percent, what is the expected rate of return assuming a 14 percent market return?a) 12.4%b) 14.3%c) 17.3%d) 20.4%e) 29.7%(b) 13 The expected rate of return on Research Industries is twice the 12 percent expected rate of return from the market. What is Researchs beta if the risk free rate is 6 percent?a) 2b) 3c) 4d) 5e) 6(b) 14 Given Birdchips beta of 1.25 and a risk free rate of 6 percent, what is the expected rate of return assuming a 12 percent market return?d) 1%a) 10%b) 11%c) 12%e) 31%(c) 15 The expected rate of return on Rewind Industries is 2.5 times the 12 percent expected rate of return from the market. What is Rewinds beta if the risk free rate is 6 percent?a) 2b) 3c) 4d) 5e) 6(b) 16 Given Gilberts beta of 1.10 and a risk free rate of 5 percent, what is the expected rate of return assuming a 10 percent market return?a) 21.5%b) 10.5%c) 5.5%d) 15.5%e) 16.5%(a) 17 The expected rate of return on Rooter Industries is 1.5 times the 16 percent expected rate of return from the market. What is Researchs beta if the risk free rate is 8 percent?a) 2b) 3c) 4d) 5e) 6(d) 18 ABC Co. has paid annual dividends in the past five years of $.20, $.25, $.28, $.33, and $.36. Calculate the average growth rate of its dividends.a) 1.16%b) 1.80%c) 12.47%d) 15.83%e) None of the aboveUSE THE FOLLOWING INFORMATION FOR THE NEXT TWO QUESTIONS Wal-Blue IndustryDPS 1.00 1.50Total Asset Turnover 3.20 2.50Net Profit Margin 3.50% 3.00%EPS 4.00 3.00Total Assets/Equity 3.00 4.00(d) 19 What are the ROEs for Wal-Blue and its industry?a) 24.3% and 27.0%b) 29.7% and 27.0%c) 29.7% and 30.0%d) 33.6% and 30.0%e) 34.5% and 31.5%(a) 20 What are the expected sustainable growth rates for Wal-Blue and its industry?a) 25.2% and 15.0%b) 30.0% and 17.5%c) 25.2% and 17.5%d) 27.5% and 12.5%e) 30.0% and 15.0%(d) 21 A firm has a current price of $40 a share, an expected growth rate of 11 percent and expected dividend per share (D1) of $2. Given its risk you have a required rate of return for it of 12 percent. Your expected rate of return and investment decision is as follows:a) 10% - do not buyb) 12% - do not buyc) 14% - buyd) 16% - buye) 18% - buy(a) 22 Assuming that you expected the stock price in the prior question to increase to $42 during the investment period, your expected rate of return and decision would be:a) 10% - do not buyb) 12% - do not buyc) 14% - buyd) 16% - buye) 18% - buy(a) 23 Based on the information provided, calculate the intrinsic value in 1999 of a share of INV Corp. using the FCFF (free cash flow to the firm ) model. For 1999 the FCFF was $15,000, total debt was $20,000, and there 12000 shares outstanding. The required rate of return is 9% and the estimated growth rate in FCFF is 6.5%.a) $51.58b) $53.25c) $12.50d) $54.92e) $50.45(a) 24 Based on the information provided, calculate the intrinsic value in 1999 of a share of INV Corp. using the Present Value of Earnings Model (infinite holding period). For 1999 Net Income was $250,000, total debt was $50,000, and there 11,000 shares outstanding. The required rate of return is 12% and the estimated growth rate in earnings is 5.5%.a) $19.43b) $23.98c) $28.52d) $22.73e) $15.50(d) 25 You are provided with the following information about Javier Corporation. Sales for the year 2000 were $500,000, the Net Profit Margin (NPM) was 15%. Analysts project sales to grow by 12% next year, that is 2001. However, because of more competition, the NPM is expected to decline by 10% for the year 2000. The expected P/E multiple for the year 2001 is 22. The total number of shares outstanding is 20,000. Use the earnings multiplier model to calculate the expected price for Javier Corporation in the year 2001.a) $74.25b) $61.6c) $82.5d) $83.16e) $101.64USE THE FOLLOWING INFORMATION TO ANSWER THE NEXT FIVE QUESTIONSYou are provided with the following information on Kayray Corporation. Your ultimate objective is to calculate the EVA for the firm.LIFO reserve60Net plant, property, and equipment1325Other assets30Goodwill325Accumulated Goodwill amortized65PV of Operating leases140Tax benefit from interest on expenses10Tax benefit from interest on leases5Taxes on non-operating income2Implied interest on op. lease9.5Increase in LIFO reserve12Goodwill amortization15Operating profit550Income tax expense215Net working capital440WACC0.12(a) 26 Calculate the adjusted operating profits before taxes.a) $586.5b) $225.64c) $825.23d) $831.56e) $692.5(b) 27 Calculate the cash operating expenses for the firma) 225b) 228c) 232d) 242e) 252(d) 28 Calculate the capital for the firma) 1725b) 1953c) 2524d) 2385e) 1987(a) 29 Calculate the dollar cost of capitala) 286.2b) 207c) 234.36d) 238.44e) 302.9(b) 30 Calculate the firms EVAa) 85.2b) 72.3c) 65.8d) 89.5e) 78.2(a) 31 The Peterson Company has FCFF of $1000. FCFF is expected to grow by 12% next year. The cost of capital is 12% and the level of debt is $5000. The number of shares outstanding is 500. Calculate the firms share price.a