Reading 59 Company Analysis and Stock Selection - LOS b ～ about, black, following, class

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6.An analyst gathered the following information about Weston Chemical’s stock:

 Estimated sales per share = $12.19

 Earnings before interest, taxes, depreciation, and amortization (EBITDA) = 73%

 Interest expense per share = $2.07

 Depreciation expense per share = $6.21

 The tax rate = 35%

Weston’s estimated Earnings per Share (EPS) is closest to?

A)   $0.40.

B)   $2.54.

C)   $3.11.

D)   $5.78.

7.All else equal, a firm will have a higher Price-to-Earnings (P/E) multiple if:

A)   retention ratio is higher.

B)   risk-free rate is higher.

C)   return on equity (ROE) is lower.

D)   the stock’s beta is lower.

8.An analyst gathered the following data for the Parker Corp. for the year ended December 31, 2005:

 EPS₂₀₀₅ = $1.75

 Dividends₂₀₀₅ = $1.40

 Beta _Parker = 1.17

 Long-term bond rate = 6.75%

 Rate of return S&₅₀₀ = 12.00%

The firm has changed its dividend policy and now plans to pay out 60% of its earnings as dividends in the future. If the long-term growth rate in earnings and dividends is expected to be 5%, the appropriate price to earnings (P/E) ratio for Parker will be:

A)   7.98.

B)   9.14.

C)   7.60.

D)   13.97.

9.An analyst gathered the following data for the Parker Corp. for the year ended December 31, 2005:

 EPS₂₀₀₅ = $ 1.75

 Dividends₂₀₀₅ = $ 1.40

 Beta _Parker = 1.17

 Long-term bond rate = 6.75%

 Rate of return S&₅₀₀ = 12.00%

The firm is expected to continue their dividend policy in future. If the long-term growth rate in earnings and dividends is expected to be 6%, the appropriate P/E ratio for Parker Corp. will be:

A)   12.31.

B)   11.61.

C)   20.32.

D)   21.54.

10.Use the following data to analyze a stock's price earnings ratio (P/E ratio):

 The stock's beta is 1.2.

 The dividend payout ratio is 60%.

 The stock's expected growth rate is 7%.

 The risk free rate is 6% and the expected rate of return on the market is 13%.

Using the dividend discount model, the expected P/E ratio of the stock is closest to:

A)   5.4.

B)   10.0.

C)   12.0.

D)   8.1.

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答案和详解如下：

6.An analyst gathered the following information about Weston Chemical’s stock:

 Estimated sales per share = $12.19

 Earnings before interest, taxes, depreciation, and amortization (EBITDA) = 73%

 Interest expense per share = $2.07

 Depreciation expense per share = $6.21

 The tax rate = 35%

Weston’s estimated Earnings per Share (EPS) is closest to?

A)   $0.40.

B)   $2.54.

C)   $3.11.

D)   $5.78.

The correct answer was A)

Estimate earnings per share (EPS) as: [(sales per share)(EBITDA %) – depreciation per share – interest per share][1 – tax rate] = [($12.19)(0.73) – $6.21 – $2.07][1 – 0.35] = $0.4022 = $0.40.

7.All else equal, a firm will have a higher Price-to-Earnings (P/E) multiple if:

A)   retention ratio is higher.

B)   risk-free rate is higher.

C)   return on equity (ROE) is lower.

D)   the stock’s beta is lower.

The correct answer was D)

To increase P/E ratio, lower the retention ratio, lower k and or increase g. A lower beta would lead to a lower stock risk premium and a lower k.

8.An analyst gathered the following data for the Parker Corp. for the year ended December 31, 2005:

 EPS₂₀₀₅ = $1.75

 Dividends₂₀₀₅ = $1.40

 Beta _Parker = 1.17

 Long-term bond rate = 6.75%

 Rate of return S&₅₀₀ = 12.00%

The firm has changed its dividend policy and now plans to pay out 60% of its earnings as dividends in the future. If the long-term growth rate in earnings and dividends is expected to be 5%, the appropriate price to earnings (P/E) ratio for Parker will be:

A)   7.98.

B)   9.14.

C)   7.60.

D)   13.97.

The correct answer was C)

P/E Ratio = 0.60/(.1289 - .0500) = 7.60.

Required rate of return on equity will be 12.89 percent = 6.75% + 1.17(12.00% - 6.75).

9.An analyst gathered the following data for the Parker Corp. for the year ended December 31, 2005:

 EPS₂₀₀₅ = $ 1.75

 Dividends₂₀₀₅ = $ 1.40

 Beta _Parker = 1.17

 Long-term bond rate = 6.75%

 Rate of return S&₅₀₀ = 12.00%

The firm is expected to continue their dividend policy in future. If the long-term growth rate in earnings and dividends is expected to be 6%, the appropriate P/E ratio for Parker Corp. will be:

A)   12.31.

B)   11.61.

C)   20.32.

D)   21.54.

The correct answer was B)

The appropriate P/E ratio for Parker will be 11.61.

P/E ratio = .80/(.1289 - .0600) = 11.61

Where r = required rate of return on equity, g_n = growth rate in dividends (forever).

The required rate of return on equity for Parker will be 12.89% = 6.75% + 1.17(12.00% - 6.75%) and the firm pays 80% (1.40/1.75) of its earnings as dividends.

10.Use the following data to analyze a stock's price earnings ratio (P/E ratio):

 The stock's beta is 1.2.

 The dividend payout ratio is 60%.

 The stock's expected growth rate is 7%.

 The risk free rate is 6% and the expected rate of return on the market is 13%.

Using the dividend discount model, the expected P/E ratio of the stock is closest to:

A)   5.4.

B)   10.0.

C)   12.0.

D)   8.1.

The correct answer was D)

k = ER = Rf + Beta(RM - Rf) = 0.06 + (1.2)(0.13 - 0.06) = 0.144

Dividend payout ratio = 0.60

P/E = div payout/(k - g) = 0.6/(0.144 - 0.07) = 8.1

 

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