Reading 44: Company Analysis and Stock Valuation - LOS b,

答案和详解如下：

6.The current market P/E on ValHealth implies a high growth phase closest to:

A)   5.0 years.

B)   6.4 years.

C)   7.2 years.

D)   4.8 years.

The correct answer was B)

The market P/E of 35x on ValHealth implies a high growth phase of 6.4 years:

Ln (35/22) = high growth phase × ln(1.15/1.07)
0.4643 = high growth phase × 0.0721
High growth phase = 0.4643 / 0.0721 = 6.4 years

7.Regarding their statements concerning the franchise P/E and franchise factor, who is incorrect?

A)                     Correct                              Incorrect

B)                     Correct                                Correct

C)                     Incorrect                              Correct

D)                     Incorrect                            Incorrect

The correct answer was C)

Chaudhry is incorrect because a firm that earns ROE above its cost of capital has a positive, not negative, franchise factor. Johannsen is correct:

intrinsic P/E = tangible P/E + franchise P/E
intrinsic P/E – franchise P/E = tangible P/E

8．Which of the following is a necessary assumption of the growth duration model that is most likely to be violated in comparing the P/E ratios of ValHealth and OmniNatures?

A)   The company growth rate must equal the industry growth rate.

B)   Sustainable growth must equal the ROE times the retention ratio.

C)   The two companies must have the same initial growth rate.

D)   The risk of the two firms must be equal.

The correct answer was D)

Since OmniNatures is a mature company (62% market share) in a mature industry, it is likely to be less risky than a small and rapidly growing company such as ValHealth. The assumption that the risk of the two firms must be equal is violated. There is no assumption that company growth must equal industry growth or that the two companies must have the same initial growth rate. There is no reason to believe that the sustainable growth of the two firms would not equal ROE times the retention ratio, and even if there were, that is not a necessary assumption of the growth duration model.

9．With respect to the industry life cycle and the business cycle, the consumer products industry can best be described as:

A                     Growth                               Growth

B)                    Growth                               Defensive

C)                    Mature                                 Growth

D)                    Mature                                Defensive

The correct answer was D)

The consumer products business has been growing in line with GDP and is thus a mature industry. It also performs better during recessionary periods than the overall market and is thus a defensive sector.

10．Regarding their statements concerning the undervaluation of ValHealth, who is correct?
 

A)                 Incorrect                                Incorrect

B)                   Correct                                  Correct

C)                 Incorrect                                  Correct

D)                   Correct                               Incorrect

The correct answer was D)

Chaudhry is correct that extending the high-growth phase would raise the implied P/E on ValHealth. Johannsen is incorrect because the implied P/E on ValHealth is below the market P/E:

Ln (P/E / 22) = 5 × ln(1.15/1.07)
Ln (P/E / 22) = 5 × 0.0721
Ln (P/E / 22) = 0.3605
P/E / 22 = 1.434
P/E = 1.434 × 22 = 31.5x

ValHealth is overvalued because its market P/E is higher than the implied P/E.