Reading 60: An Introduction to Security Valuation: Part II

答案和详解如下：

6.l else equal, an increase in a company’s growth rate will most likely cause its P/E ratio to:

A)   either increase or decrease.

B)   not change.

C)   decrease.

D)   increase.

The correct answer was D)

Increase in g: As g increases, the spread between k_e and g, or the P/E denominator, will decrease, and the P/E ratio will increase.

7.sume a company's ROE is 14% and the required return on equity is 13%. All else remaining equal, if there is a decrease in a firm’s retention rate, a stock’s value as estimated by the constant growth dividend discount model (DDM) will most likely:

A)   either increase or decrease.

B)   decrease.

C)   not change.

D)   increase.

The correct answer was B)

Increase in dividend payout/reduction in earnings retention. In this case, reduction in earnings retention will likely lower the P/E ratio. The logic is as follows: Because earnings retention impacts both the numerator (dividend payout) and denominator (g) of the P/E ratio, the impact of a change in earnings retention depends upon the relationship of k_e and ROE. If the company is earning a higher rate on new projects than the rate required by the market (ROE > k_e), investors will likely prefer that the company retain more earnings. Since an increase in the dividend payout would decrease earnings retention, the P/E ratio would fall, as investors will value the company lower if it retains a lower percentage of earnings.

8.l else equal, if a firm’s return on equity (ROE) increases, the stock’s value as estimated by the constant growth dividend discount model (DDM) will most likely:

A)   not change.

B)   decrease.

C)   increase.

D)   either increase or decrease.

The correct answer was C)

Increase in ROE: ROE is a component of g. As g increases, the spread between k_e and g, or the P/E denominator, will decrease, and the P/E ratio will increase.

9.company currently has a required return on equity of 14 percent and an ROE of 12 percent. All else equal, if there is an increase in a firm’s dividend payout ratio, the stock's value will most likely:

A)   decrease.

B)   not change.

C)   either increase or decrease.

D)   increase.

The correct answer was D)

Increase in dividend payout/reduction in earnings retention. In this case, an increase in the dividend payout will likely increase the P/E ratio because a decrease in earnings retention will likely increase the P/E ratio. The logic is as follows: Because earnings retention impacts both the numerator (dividend payout) and denominator (g) of the P/E ratio, the impact of a change in earnings retention depends upon the relationship of k_e and ROE. If the company is earning a lower rate on new projects than the rate required by the market (ROE < k_e), investors will likely prefer that the company pay out earnings rather than investing in lower-yield projects. Since an increase in the dividend payout would decrease earnings retention, the P/E ratio would rise, as investors will value the company higher if it retains a lower percentage of earnings. 

10.analyst gathered the following information for a company:

 Risk-free rate = 6.75%

 Expected market return = 15.00%

 Beta = 1.30

 Dividend payout ratio = 55%

 Profit margin = 10.0%

 Total asset turnover = 0.75

 Assets to equity ratio = 2.00

What is the firm’s sustainable growth rate?

A)   Tax rate needed to determine answer.

B)   6.75%

C)   15.00%

D)   16.50%

The correct answer was B)

Sustainable Growth (g) = ROE x Earnings Retention Rate, or ROE * (1 - Dividend Payout)

ROE = Profit Margin x Total Asset Turnover x Financial Leverage Multiplier

        = .10 x .75 x 2 = .15

g  = 0.15 x 0.45

    = .0675, or 6.75%.