Chapter 9 The Valuation of Stock
TRUE/FALSE
T 1. The expected return depends on future dividends and future price appreciation.
T 2. The dividend-growth valuation model depends on dividends and the required rate of return. F 3. The dividend‑growth model includes both the current and past years' dividends.
T 4. If the anticipated return exceeds the required rate of return, the investor should buy the stock.
F 5. The dividend‑growth model requires that dividends grow annually at the same rate.
F 6. A higher beta decreases the required rate of return.
T 7. The required rate of return includes the risk‑free rate and a risk premium.
T 8. An increase in the risk‑free rate will tend to decrease
…show more content…
weak form of the efficient market hypothesis b. semi‑strong form of the efficient market hypothesis c. strong form of the efficient market hypothesis d. all forms of the efficient market hypothesis
d 11. A low price to sales ratio suggests a. the firm is generating cash b. the firm has no earnings c. the stock valuation is too high d. the stock may be undervalued
b 12. The price to sales ratio may be a preferred analytical tool if a. the firm is not generating cash b. the firm is not generating earnings c. the P/E ratio is too high d. the dividend-growth model suggests the stock is undervalued
c 13. Investors may use P/E ratios and price/sales ratios to value stocks. If this analysis is used, which of the following is desirable? a. a high P/E and a low price/sales ratio b. a high P/E and a high price/sales ratio c. a low P/E and a low price/sales ratio d. a low P/E and a high price/sales ratio
c 14. If the ratio of price to book exceeds 1.0, a. the stock is overvalued b. the firm's assets are understated c. the price of the stock is greater than the accounting value of the firm d. the accounting value of the firm is greater than the market value of the firm
PROBLEMS
1. Your broker recommends that
Portfolio management is an important factor that determines the performance of the portfolio. To perform well in the portfolio, it is not only essential to develop personal investment strategies, but analyzing current financial trend is also vital. Stock Trak is an online portfolio simulation that allows students to try out different investment strategies, and also get a hand on experience in what the real market trading conditions are. By managing the portfolio, I have acquired some new knowledge of investment strategies and also become more familiar with the current market by following closely to the financial headlines.
In this paper I intend to provide a sound financial analysis of Tesla Motors Incorporated. I will do so by calculating and providing liquidity, profitability, and solvency ratios and then evaluating those results. Assessment of these ratios will more or less define Tesla Motors’ abilities to meet its short-term debts and obligations (liquidity), performance in relation to sales, assets, and profits or losses (profitability), and the resulting income amount, after tax deductions, against the company’s liabilities (solvency). Additionally I will compare
Although this investment class can be considered the most conservative of the three, the low yield of government bonds in the past 10 years does not lend a comparative metric against many other investment opportunities (Jacobs, 2012). The fixed rate of these instruments allows for a guaranteed return, but should only be utilized at a point in an investing cycle when risk is higher than potential income growth. The 25% allocation that is invested in this class is positioned to provide a long term guaranteed investment, with the possible that these lower rates will not rise significantly in the next few years.
We use Capital Asset Pricing Model (CAPM) approach to calculate the cost of equity. The formula of CAPM is re = rf + β × (E[RMkt] – rf).
Certificate of Deposit is a savings note issued by a bank to a depositor who places funds in saving for a set period.
The company that I chose to analyze is Tootsie Roll. Throughout my life I have always had somewhat of a sweet tooth and have been very intrigued in the process of business. Now I have the opportunity to look further into such a great company such as Tootsie Roll and really find out how the business is run and what type of work is invested in such a well known business.
Commutronics had not accumulated enough profits and had no sufficient capital reserves. The company’s registered capital was therefore very low. The withholding tax rate of
The “Stock Market” is a term that actually describes several markets such as the New York Stock Exchange NASDAQ, where the stocks of companies are traded. Shares in a company are sold and the shareholders then become part owners of the company. Offering shares of stock raises money for continued research and development of company products or services.
3. At what price would you recommend that Rosetta Stone shares be sold?Rosetta Stone: Pricing the 2009 IPO
Monday, September 10, 2012, I started Stock-Trak, an online portfolio game. Stock- Trak allowed me to gain hands on experience testing different investment strategies in a risk-free, yet realistic environment. From September 10 to November 16, 2012, I took part in one such simulation by managing an online Stock-Trak portfolio. I was given an initial amount of $100,000 pretend cash with which to invest. All monetary decisions were at my discretion. This paper discusses my trading experience , my portfolio’s performance, the strategies used during the simulation, what I learned in the process, and how I will implement the knowledge gained from the simulation in future investments.
There is no doubt that the contribution of each of the group members is equal.
The valuation process, in this case, requires us to estimate the short-run non-constant growth rate and predict future dividends. Then, we must estimate a constant long-term growth rate at which the firm is expected to grow. Generally, we assume that after a certain point of time, all firms begin to grow at a rather constant rate. Of course, the difficulty in this framework is estimating the short-term growth rate, how long the short-term growth will hold, and the long-term growth rate.
One of the most important objectives of the curse is that as students we should be able to make better financial decisions. Have a better understanding and ability to process and implement strategies and make successful decisions.
General Motors Corp. (NYSE: GM), the world's largest automaker, has been the global industry sales leader for 76 years. General Motors was founded 1908, in Flint, Michigan and currently employs approximately 284,000 people around the world. GM's global headquarters is the Renaissance Center located in Detroit, Michigan, USA, They currently manufacture their cars and trucks in 35 different countries. Its European headquarters are based in Zurich, Switzerland, and its Holden headquarters are located in Melbourne, Victoria, Australia. In 2007, 9.37 million GM cars and trucks were produced globally under the following 12 brands: Buick, Cadillac, Chevrolet, GM Daewoo, GMC, Holden, Hummer, Opel, Pontiac, Saab, Saturn and
Ralph Lauren Corporation (NYSE:RL) is well known in the apparel clothing field. The corporation engages in the design, marketing and distribution of lifestyle product. This analysis paper will illustrate the current financial situation and forecast the future free cash flow based on the previous financial statement and financial data collected. These information and forecast are served for the potential investor to have a general understanding of RL Corporation and make the right choice on their money.