Reading 36: Equity: Concepts and Techniques-LOS c 习题精选 2010, discounted, including, identify, either

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Session 11: Equity Valuation: Industry and Company Analysis in a Global Context
Reading 36: Equity: Concepts and Techniques

LOS c: Evaluate the common approaches of equity analysis (ratio analysis and discounted cash flow models, including the franchise value model) and identify mispriced stocks using either method.

 

 

 

Which of the following is least likely to be characteristic of a firm earning excess risk-adjusted return and its industry?

A) A full flow-through firm.

B) ROE in excess of the required rate of return.

C) A franchise factor equal to zero.

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The higher the franchise factor, the higher the firm valuation. A zero franchise factor is not likely to be associated with a firm earning excess returns. Full flow-through and ROE greater than the required rate of return both raise valuation, other things equal.

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If a firm’s return on equity (ROE) is greater than the rate of return demanded by investors (r), which of the following statements is TRUE? There is:

A) a high franchise P/E value.

B) negative franchise value.

C) potential franchise value.

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If ROE is greater than r, then there is some benefit in reinvesting the earnings within the firm, therefore, there is potential franchise value.

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Which of the following variables is least likely to be applicable in analyzing the price-to-earnings (P/E) values for a firm?

A) Return on equity.

B) Rate of return demanded by investors.

C) Tax rate.

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The tax rate is not generally applicable in an analysis of P/E values. Presumably, the earnings are already taxed at the firm level. Both remaining variables are important components in the analysis and calculation of P/E values.

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Which of the following statements about the franchise value method is TRUE?

A) The firm’s tangible price-to-earnings (P/E) value is the sum of the firm’s intrinsic P/E value and franchise P/E value.

B) The franchise factor accounts for the required returns from new investments.

C) The franchise factor accounts for the present value of the excess returns from new investments.

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The intrinsic P/E value is the sum of the tangible P/E value and the franchise P/E value. The franchise P/E can be analyzed as two components: a franchise factor that accounts for the required return from new investments, and a growth factor that accounts for the present value of excess returns from new investments.

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