# Quiz 12: Macroanalysis and Microvaluation of the Stock Market

Anthropology

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Q 3Q 3

The cyclical indicator approach to market analysis is based on the belief that the economy expands and contracts in a random manner.

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True False

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Q 4Q 4

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

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True False

Q 5Q 5

Coincident indicators include economic time series that have peaks and troughs that roughly occur at the same time as the peaks and troughs of overall economic activity.

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True False

Q 6Q 6

The economy and the stock market have a strong, consistent relationship, but the stock market generally turns before the economy does.

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True False

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True False

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True False

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Q 10Q 10

Recent studies show that money supply changes have an important impact on stock price movements.

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True False

Q 11Q 11

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

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True False

Q 12Q 12

The first step in the Goldman Sachs analysis of world markets examines a country's aggregate economy and its components that relate to the valuation of securities.

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True False

Q 13Q 13

The Goldman Sach analysis recommends an allocation of equity investments among countries in comparison to the country's normal weighting based on its relative market value.

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True False

Q 14Q 14

It is important to analyze the economies and security markets before analyzing alternative industries or companies.

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True False

Q 15Q 15

Over the last 20 years, increases in the return on equity for the S&P Index has been associated with decreases in return of assets.

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True False

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True False

Q 17Q 17

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

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True False

Q 18Q 18

There is a negative relationship between the capacity utilization rate and the profit margin.

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True False

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True False

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True False

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True False

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True False

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True False

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Q 25Q 25

Changes in the dividend payout ratio are positively related to changes in the retention rate.

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True False

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Q 27Q 27

The valuation techniques presented in the chapter can only be applied to the stock market in the United States, since the U.S. stock market is inefficient.

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True False

Q 28Q 28

One of the economic series included in the National Bureau of Economic Research (NBER) coincident indicator is the index of industrial production.

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True False

Q 29Q 29

A major advantage of the cyclical indicator approach is that it spans all important major economic sectors including the service sector and import-exports.

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True False

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True False

Q 31Q 31

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.

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True False

Q 32Q 32

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

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True False

Q 33Q 33

Interest rate spread, 10-year Treasury bonds less federal funds, is listed as a lagging indicator in the National Bureau of Economic Research (NBER).

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True False

Q 34Q 34

Building permits for new private housing units are listed as a leading indicator by the National Bureau of Economic Research (NBER).

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True False

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True False

Q 36Q 36

The index of leading indicators includes all of the following, except:
A)M2 money supply.
B)S & P 500 index.
C)Orders for plant and equipment.
D)Changes in the sensitive materials price.
E)Index of industrial production.

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Multiple Choice

Q 37Q 37

Which of the following are not cyclical indicators?
A)Selected series
B)Coincident indicators
C)Diffusion indicators
D)Leading indicators
E)Lagging indicators

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Multiple Choice

Q 38Q 38

The U.S. balance of payments, the federal deficit and military contract awards are ____ of aggregate economic activity.
A)Leading indicators
B)Coincident indicators
C)Lagging indicators
D)Not categorized indicators
E)Not indicators

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Multiple Choice

Q 39Q 39

Which of the following series does not include the long-leading index?
A)Dow Jones Industrial Average
B)Dow Jones Bond Prices, Percent Face Value
C)Price to Unit Labor Cost
D)M2 Money Supply, Deflated
E)New Building Permits

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Multiple Choice

Q 40Q 40

Which of the following variables was considered not significant in explaining stock returns?
A)Industrial production
B)Changes in the risk premium
C)Consumption
D)Twists in the yield curve
E)Inflation

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Multiple Choice

Q 41Q 41

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

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Multiple Choice

Q 42Q 42

The correlation of stock market returns between the U.S. and Japan is ____ and ____.
A)High, increasing.
B)High, decreasing.
C)Low, increasing.
D)Low, decreasing.
E)Low, remaining constant.

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Multiple Choice

Q 43Q 43

Which of the following is not an analytical measure used by the NBER to examine behavior within a series?
A)Diffusion indexes
B)Rates of change
C)Direction of change
D)Ratios among series
E)Comparison with previous cycles

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Multiple Choice

Q 44Q 44

Excess liquidity is defined as
A)The year-to year percentage change in the M2 money supply less the year-to-year percentage change in the nominal GNP.
B)The growth rate in M2 money supply less the growth rate in M1 money supply.
C)The year-to-year percentage change in the M1 money supply less the year-to-year percentage.
D)The year-to-year percentage change in the "real" GNP less the year-to-year percentage change in the nominal GNP.
E)None of the above

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Multiple Choice

Q 45Q 45

Which of the following is not normally associated with cyclical indicators?
A)The Securities and Exchange Commission (SEC)
B)The National Bureau of Economic Research (NBER)
C)Business Week
D)Center for International Business Cycle Research (CIBCR)
E)All of the above

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Multiple Choice

Q 46Q 46

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

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Multiple Choice

Q 47Q 47

Which of the following statements concerning asset allocation is false?
A)Diversification across international boundaries can improve risk-adjusted portfolio returns.
B)Economies expected to grow at an above-average rate with above-average profit growth should be considered as candidates to overweight in a global portfolio.
C)Severe currency blockages should not impact global diversification selections.
D)Portfolio allocation among asset classes may provide higher portfolio returns while lowering portfolio risk levels.
E)None of the above (that is, all statements are true).

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Multiple Choice

Q 48Q 48

The National Bureau of Economic Research (NBER) has derived the following indicator series in order to monitor business cycles.
A)M2, leading, and lagging.
B)Leading, coincident, and consumer expectations.
C)Leading, coincident, and lagging.
D)Leading, coincident, and M2.
E)Consumer expectations, leading, and lagging.

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Multiple Choice

Q 49Q 49

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

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Multiple Choice

Q 50Q 50

Which of the following economic series are included in the NBER coincident indicator group?
A)Employees on nonagricultural payrolls.
B)Change in consumer price index for services.
C)Index of consumer expectations.
D)Spread of 10-year Treasury yield less fed funds.
E)Index of stock prices.

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Multiple Choice

Q 51Q 51

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

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Multiple Choice

Q 52Q 52

The initial effect of a change in monetary policy appears in ____ and only later in ____.
A)The aggregate economy, financial markets.
B)Financial markets, the aggregate economy.
C)Bond markets, stock markets,
D)Stock markets, bond markets.
E)None of the above.

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Multiple Choice

Q 53Q 53

Jensen, Johnson, and Mercer showed that the relationship between stock returns and size and price-to-book ratio holds in periods when monetary policy is
A)Neutral.
B)Tight.
C)Easy.
D)All of the above.
E)None of the above.

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Multiple Choice

Q 54Q 54

If interest rates increase due to inflation, but expected cash flows to a firm do not change, then you would expect stock prices to
A)Rise.
B)Rise and then decline.
C)Remain unchanged.
D)Decline.
E)None of the above.

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Multiple Choice

Q 55Q 55

If interest rates rise due to inflation, and expected cash flows to a firm rise, then you would expect stock prices to
A)Rise.
B)Rise and then decline.
C)Remain unchanged.
D)Decline.
E)None of the above.

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Multiple Choice

Q 56Q 56

There are three techniques available to help an investor make a market decision. Which of the following is not such an analysis technique?
A)Macro techniques that are based on the strong relationship between the economy and security markets.
B)Micro techniques that estimate future market values by applying one of several basic valuation models to equity markets.
C)Technical analysis where an investor analyzes past and recent market movements for indications of future performance.
D)Fundamental analysis that considers the effect of market on the entire portfolio.
E)None of the above (that is, all are techniques available to make market decisions)

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Multiple Choice

Q 57Q 57

Which of the following is not a factor under the Free Cash Flow to Equity (FCFE) Model?
A)Depreciation expense
B)Capital expenditure
C)Change in working capital
D)Principal debt repayment
E)Earnings multiplier

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Multiple Choice

Q 58Q 58

Expected earnings per share estimates requires all of the following except
A)A sales per share estimate.
B)A GDP estimate.
C)An aggregate operating profit margin estimate
D)An estimate of the real risk-free rate.
E)A tax rate estimate.

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Multiple Choice

Q 59Q 59

The dividend payout ratio, the required rate of return on common equity, and the expected growth rate of stock dividends are the major variables that affect
A)The profit margin for the S&P Industrials Index.
B)The earnings multiplier for common stock.
C)Aggregate tax revenues.
D)Capital gains tax revenues.
E)Aggregate GDP.

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Multiple Choice

Q 60Q 60

Aggregate return on equity increases as
A)Profit margins increase.
B)Total asset turnover increases.
C)Financial leverage increases.
D)Equity turnover decreases.
E)All of the above.

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Multiple Choice

Q 61Q 61

All of the following factors affect the required rate of return except
A)The economy's risk free rate.
B)Corporate business risk.
C)Return on equity.
D)Country risk.
E)Expected rate of inflation.

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Multiple Choice

Q 62Q 62

The growth rate (g) of dividends is affected by all of the following except
A)Required return
B)Retention rate
C)Total asset turnover
D)Financial leverage
E)Net profit margin

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Multiple Choice

Q 63Q 63

Unit labor costs, the rate of inflation, the level of foreign competition, and the capacity utilization rate were variables tested by Finkel and Tuttle as determinants of the
A)Balance of payments.
B)The exchange rate.
C)Aggregate operating profit margin.
D)Aggregate profit margin.
E)Aggregate cost margin.

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Multiple Choice

Q 64Q 64

Which of the following is not a determinant of the aggregate gross profit margin?
A)Unit labor costs of production
B)Rate of inflation
C)Unemployment rate
D)Level of foreign competition
E)Growth rate of M2 money supply

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Multiple Choice

Q 65Q 65

A microeconomic estimate of the market earnings multiple requires an estimate for which of the following variables?
A)Dividend payout ratio
B)Return on equity
C)Real RFR
D)All of the above
E)None of the above

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Multiple Choice

Q 66Q 66

Which of the following economic series is not included in the National Bureau of Economic Research (NBER) leading indicator group?
A)Average weekly initial claims for unemployment
B)Index of 500 consumer stock prices
C)Real money supply, M2
D)Index of industrial production
E)All of the above are included in the NBER leading indicator group

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Multiple Choice

Q 67Q 67

Which of the following economic series is not included in the National Bureau of Economic Research (NBER) lagging indicator group?
A)Average duration of unemployment
B)Ratio of manufacturing and trade inventories to sales
C)Number of employees on nonagricultural payrolls
D)Percentage change in the labor cost per unit of output in manufacturing
E)All of the above are included in the NBER lagging indicator group

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Multiple Choice

Q 68Q 68

The multiplier approach for estimating the intrinsic market value of a major stock market series requires the following step(s):
A)Estimating the future earnings per share for the stock market series
B)Estimating the appropriate earnings multiplier for the stock market series
C)Estimating long-run required rates of return and growth rates
D)Both a and b
E)All of the above

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Multiple Choice

Q 69Q 69

You are attempting to estimate expected earnings per share for a major stock market series. You have determined an appropriate estimate for sales per share. Which of the following methods can be used to estimate the profit margin?
A)Base the estimate on recent trends of net profit margins.
B)Estimate the net before tax (NBT) profit margin along with a tax estimate.
C)Incorporate an estimate an operating profit margin, defined as earnings before interest, taxes, and depreciation.
D)All of the above methods are appropriate.
E)None of the above methods are appropriate.

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Multiple Choice

Q 70Q 70

A 1971 study by Finkel and Tuttle hypothesizes that all of the following variables affect the aggregate profit margin except
A)Capacity utilization rate
B)Unit labor costs
C)Variable labor costs
D)Rate of inflation
E)Foreign competition

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Multiple Choice

Q 71Q 71

Which of the following economic series is not included in the National Bureau of Economic Research (NBER) coincident economic indicator group?
A)Total value of commercial loans
B)Employees on nonagricultural payrolls
C)Personal income less transfer payments
D)Industrial production
E)Manufacturing and trade sales

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Multiple Choice

Q 72Q 72

Which of the following is not a major variable that affects the aggregate stock market earning multiplier in a country?
A)Required rate of return on common stock in the country
B)Expected growth rate of dividends for the stocks in the country
C)Composite dividend-payout ratio for common stocks in country
D)Composite debt to equity ratio for firms in the country
E)All of the above are major variables for a country's aggregate stock market earnings multiplier

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Multiple Choice

Q 73Q 73

The growth rate will most likely increase if the:
A)Retention ratio decreases
B)Payout ratio decreases
C)Return on equity decreases
D)Net income increases
E)Both a and c

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Multiple Choice

Q 74Q 74

When applying the earnings multiplier model all of the following will cause the required rate of return, k, to change except
A)Changes in the real risk free rate
B)Changes in the retention rate
C)Changes in the rate of inflation
D)Changes in the risk premium for common stock
E)All of the above changes will cause a change in the required rate of return

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Multiple Choice

Q 75Q 75

If, for the S&P Industrials Index, 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%

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Multiple Choice

Q 76Q 76

If, for the S&P Industrials Index, 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%

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Multiple Choice

Q 77Q 77

If, for the S&P Industrials Index, 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%

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Multiple Choice

Q 78Q 78

If, for the S&P Industrials Index, 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%

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Multiple Choice

Q 79Q 79

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

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Multiple Choice

Q 80Q 80

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

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Multiple Choice

Q 81Q 81

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

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Multiple Choice

Q 82Q 82

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.
A)5
B)2.81
C)7.5
D)4
E)None of the above

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Multiple Choice

Q 83Q 83

Exhibit 12.1
USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S)
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.
-Refer to Exhibit 12.1. What is the expected sustainable growth rate?
A)2.80%
B)4.20%
C)5.25%
D)7.80%
E)9.75%

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Multiple Choice

Q 84Q 84

Exhibit 12.1
USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S)
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.
-Refer to Exhibit 12.1. 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

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Multiple Choice

Q 85Q 85

Exhibit 12.1
USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S)
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.
-Refer to Exhibit 12.1. 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

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Multiple Choice

Q 86Q 86

Exhibit 12.2
USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S)
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.
-Refer to Exhibit 12.2. What is the expected sustainable growth rate?
A)9.0%
B)7.2%
C)6.0%
D)3.0%
E)3.6%

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Multiple Choice

Q 87Q 87

Exhibit 12.2
USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S)
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.
-Refer to Exhibit 12.2. 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

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Multiple Choice

Q 88Q 88

Exhibit 12.2
USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S)
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.
-Refer to Exhibit 12.2. 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

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Multiple Choice

Q 89Q 89

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 the expected sustainable growth rate?
A)5.85
B)7.15
C)4.05
D)6.75
E)8.25

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Multiple Choice

Q 90Q 90

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

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Multiple Choice

Q 91Q 91

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. 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

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Multiple Choice

Q 92Q 92

Exhibit 12.4
USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S)
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.
-Refer to Exhibit 12.4. What is the expected sustainable growth rate?
A)4.95
B)7.2
C)8.8
D)6.3
E)7.7

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Multiple Choice

Q 93Q 93

Exhibit 12.4
USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S)
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.
-Refer to Exhibit 12.4. 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

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Multiple Choice

Q 94Q 94

Exhibit 12.4
USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S)
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.
-Refer to Exhibit 12.4. 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

Free

Multiple Choice

Q 95Q 95

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

Free

Multiple Choice

Q 96Q 96

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. The firm's sustainable growth rate is
A)15%
B)10%
C)9%
D)8%
E)7%

Free

Multiple Choice

Q 97Q 97

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 P/E multiple.
A)35
B)30
C)25
D)20
E)15

Free

Multiple Choice

Q 98Q 98

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

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Multiple Choice

Q 99Q 99

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.
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)
-Refer to Exhibit 12.6. Calculate GDP for the year 2004.
A)$10,500 billion
B)$11,000 billion
C)$11,385 billion
D)$10,550 billion
E)$11,025 billion

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Multiple Choice

Q 100Q 100

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.
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)
-Refer to Exhibit 12.6. Estimate the firm's growth rate in sales per share.
A)1.5%
B)2%
C)2.16%
D)4.13%
E)3.73%

Free

Multiple Choice

Q 101Q 101

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.
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)
-Refer to Exhibit 12.6. Estimate the firm's sales per share for the year 2004.
A)$833.04
B)$900.08
C)$885.03
D)$925.56
E)$850.75

Free

Multiple Choice

Q 102Q 102

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.
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)
-Refer to Exhibit 12.6. Calculate the firm's year 2004 EBITDA per share.
A)$95.05
B)$87.15
C)$112.56
D)$104.73
E)$99.96

Free

Multiple Choice

Q 103Q 103

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.
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)
-Refer to Exhibit 12.6. Obtain an estimate of the per share depreciation charge for the year 2004.
A)$58.31
B)$102.35
C)$53.68
D)$75.93
E)$65.78

Free

Multiple Choice

Q 104Q 104

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.
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)
-Refer to Exhibit 12.6. Calculate the per share EBIT for the year 2004.
A)$35.53
B)$41.65
C)$55.89
D)$65.14
E)$75.10

Free

Multiple Choice

Q 105Q 105

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.
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)
-Refer to Exhibit 12.6. Calculate the firm's level of Total Assets per share for the year 2004.
A)$1050.65
B)$1065.67
C)$1113.58
D)$1190.06
E)$1385.77

Free

Multiple Choice

Q 106Q 106

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.
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)
-Refer to Exhibit 12.6. Calculate the firm's level of debt for the year 2004.
A)$535.53
B)$600.75
C)$637.67
D)$485.98
E)$393.72

Free

Multiple Choice

Q 107Q 107

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.
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)
-Refer to Exhibit 12.6. Calculate the per share interest rate charge for the year 2004.
A)$18.74
B)$14.72
C)$30.07
D)$13.76
E)$28.59

Free

Multiple Choice

Q 108Q 108

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.
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)
-Refer to Exhibit 12.6. Calculate the firm's EBT per share for the year 2004.
A)$13.29
B)$27.89
C)$18.75
D)$19.63
E)$22.91

Free

Multiple Choice

Q 109Q 109

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.
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)
-Refer to Exhibit 12.6. Calculate the firm's EPS for the year 2004.
A)$15.25
B)$14.66
C)$17.25
D)$12.56
E)$18.57

Free

Multiple Choice

Q 110Q 110

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 will FCFE be three years from now?
A)108.90
B)116.52
C)117.00
D)119.79
E)120.21

Free

Multiple Choice

Q 111Q 111

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 is the estimated value of the U.S. market today using the FCFE approach?
A)2,852
B)2,918
C)3,210
D)3,390
E)3,884

Free

Multiple Choice

Q 112Q 112

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

Free

Multiple Choice

Q 113Q 113

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.
-Compute the current earnings multiple if the dividend payout ratio for the aggregate market is 60 percent, the required rate of return is 11%, and the dividend growth rate is 8%.
A)15
B)20
C)25
D)30
E)35

Free

Multiple Choice

Q 114Q 114

Exhibit 12.8
USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S)
As an economist for a research firm you are forecasting the market P/E ratio using the dividend discount model. Because the economy has been slow for 5 years, you expect the dividend-payout ratio to be 55%. Long-term government bond rates are at 6% and the equity risk premium is estimated to be 3%. Return on equity (ROE) is estimated to be 11%.
-Refer to Exhibit 12.8. What is the expected growth rate?
A)3.00%
B)3.92%
C)4.95%
D)5.27%
E)6.05%

Free

Multiple Choice

Q 115Q 115

Exhibit 12.8
USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S)
As an economist for a research firm you are forecasting the market P/E ratio using the dividend discount model. Because the economy has been slow for 5 years, you expect the dividend-payout ratio to be 55%. Long-term government bond rates are at 6% and the equity risk premium is estimated to be 3%. Return on equity (ROE) is estimated to be 11%.
-Refer to Exhibit 12.8. What is your expectation of the market P/E ratio?
A)9.17
B)11.11
C)13.58
D)18.33
E)21.42

Free

Multiple Choice

Q 116Q 116

Exhibit 12.9
USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S)
The aggregate market currently has a retention ratio of 60 percent, a required rate of return of 12 percent, and an expected growth rate for dividends of 4 percent.
-Refer to Exhibit 12.9. What is the current earnings multiplier?
A)2.5
B)5.0
C)7.5
D)10.0
E)12.5

Free

Multiple Choice

Q 117Q 117

Exhibit 12.9
USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S)
The aggregate market currently has a retention ratio of 60 percent, a required rate of return of 12 percent, and an expected growth rate for dividends of 4 percent.
-Refer to Exhibit 12.9. If the payout ratio changes to 50 percent, but there are no other changes, what will be the new P/E?
A)3.25
B)4.16
C)5.75
D)6.25
E)7.67

Free

Multiple Choice

Q 118Q 118

Exhibit 12.9
USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S)
The aggregate market currently has a retention ratio of 60 percent, a required rate of return of 12 percent, and an expected growth rate for dividends of 4 percent.
-Refer to Exhibit 12.9. Starting with the initial conditions, you expect the retention ratio to be constant, the rate of inflation to decline by 2 percent, and the growth rate to decline by 1 percent. What is the expected P/E?
A)8.57
B)8.00
C)6.67
D)5.71
E)5.00

Free

Multiple Choice

Q 119Q 119

Exhibit 12.9
USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S)
The aggregate market currently has a retention ratio of 60 percent, a required rate of return of 12 percent, and an expected growth rate for dividends of 4 percent.
-Refer to Exhibit 12.9. Starting with the initial conditions, you expect the retention ratio to be constant, the rate of inflation to increase by 2 percent, and the growth rate to increase by 1 percent. What is the expected P/E?
A)4.44
B)5.00
C)5.71
D)6.67
E)8.00

Free

Multiple Choice