标题: Reading 56: An Introduction to Security Valuation LOSf习题精 [打印本页]
作者: honeycfa 时间: 2010-4-22 22:37 标题: [2010]Session 14-Reading 56: An Introduction to Security Valuation LOSf习题精
LOS f: Estimate the dividend growth rate, given the components of the required rate of return incorporating the earnings retention rate and current stock price.
If a company can convince its suppliers to offer better terms on their products leading to a higher profit margin, the return on equity (ROE) will most likely:
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A) |
increase and the stock price will increase | |
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B) |
increase and the stock price will decline. | |
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C) |
decrease and the stock price will increase. | |
Better supplier terms lead to increased profitability. Better profit margins lead to an increase in ROE. This leads to an increase in the dividend growth rate. The difference between the cost of equity and the dividend growth rate will decline, causing the stock price to increase.
作者: honeycfa 时间: 2010-4-22 22:37
Assuming a firm does not currently have excessive debt, a decrease in leverage will most likely cause the firm’s stock price to:
The firm’s stock price will most likely fall for two reasons: 1) loss of the debt tax shelter; 2) decrease in the leverage multiplier, A/E, causing ROE to decline.
作者: honeycfa 时间: 2010-4-22 22:37
When a company’s return on equity (ROE) is 12% and the dividend payout ratio is 60%, what is the implied sustainable growth rate of earnings and dividends?
g = ROE × retention ratio = ROE × (1 – payout ratio) = 12 (0.4) = 4.8%
作者: honeycfa 时间: 2010-4-22 22:37
Which of the following statements concerning security valuation is least accurate?
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A) |
The best way to value a company with no current dividend but who is expected to pay dividends in three years is to use the temporary supernormal growth (multistage) model. | |
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B) |
The best way to value a company with high and unsustainable growth that exceeds the required return is to use the temporary supernormal growth (multistage) model. | |
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C) |
A firm with a $1.50 dividend last year, a dividend payout ratio of 40%, a return on equity of 12%, and a 15% required return is worth $18.24. | |
A firm with a $1.50 dividend last year, a dividend payout ratio of 40%, a return on new investment of 12%, and a 15% required return is worth $20.64. The growth rate is (1 – 0.40) × 0.12 = 7.2%. The expected dividend is then ($1.50)(1.072) = $1.61. The value is then (1.61) / (0.15 – 0.072) = $20.64.
作者: honeycfa 时间: 2010-4-22 22:38
Which of the following statements concerning security valuation is least accurate?
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A) |
If the firm's payout ratio is 40%, has a required return of 12%, and a dividend growth rate of 7%, the firm's price to earnings (P/E) ratio should be 8. | |
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B) |
The liquidity risk of countries refers to the size and activity of the country's capital markets. | |
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C) |
ROA times one minus the dividend payout ratio is the firm's sustainable growth rate. | |
One minus the dividend payout ratio is the firm’s retention rate. The sustainable growth rate is the firm’s return on equity (ROE) times the retention rate.
作者: honeycfa 时间: 2010-4-22 22:38
Which of the following statements concerning security valuation is least accurate?
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A) |
Accounting methods may differ substantially between countries. | |
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B) |
The business risk component of a country's risk premium is a function of the variability of economic activity in the country and the average operating leverage used by firms in the country. | |
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C) |
If the return on new investments is less than the return the firm is earning on its existing investments, the firm is considered a growth firm. | |
If the return on new investments is greater than the return the firm is earning on its existing investments, the firm is considered to be a growth firm.
作者: honeycfa 时间: 2010-4-22 22:38
A company’s payout ratio is 0.45 and its expected return on equity (ROE) is 23%. What is the company’s implied growth rate in dividends?
Growth Rate = (ROE)(1 – Payout Ratio) = (0.23)(0.55) = 12.65%
作者: honeycfa 时间: 2010-4-22 22:38
A company’s required return on equity is 15% and its dividend payout ratio is 55%. If its return on equity (ROE) is 17% and its beta is 1.40, then its sustainable growth rate is closest to:
Growth rate = (ROE)(Retention Ratio)
= (0.17)(0.45)
= 0.0765 or 7.65%
作者: honeycfa 时间: 2010-4-22 22:39
If a firm’s growth rate is 12% and its dividend payout ratio is 30%, its current return on equity (ROE) is closest to:
g = (RR)(ROE)
g / RR = ROE
0.12 / (1 - 0.30) = 0.12 / 0.70 = 0.1714 or 17.14%
作者: honeycfa 时间: 2010-4-22 22:39
A company with a return on equity (ROE) of 27%, required return on equity (ke) of 20%, and a dividend payout ratio of 40% has an implied sustainable growth rate closest to:
g = (RR)(ROE)
= (.60)(.27)
= 0.162 or 16.2%
作者: honeycfa 时间: 2010-4-22 22:40
The Sustainable Growth Rate is equal to:
The Sustainable Growth Rate is equal to the return on the equity portion of new investments (ROE) multiplied by the firm's retention rate (RR).
作者: honeycfa 时间: 2010-4-22 22:40
A high growth rate would be consistent with:
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B) |
a high dividend payout rate. | |
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Since g = retention rate * ROE, or (1 - payout ratio) * ROE, the only choice that would result in a higher g is a higher ROE. A low ROE, or a high dividend payout rate (which is the same as a low retention rate) would result in a low growth rate.
作者: honeycfa 时间: 2010-4-22 22:40
A firm has a profit margin of 10%, an asset turnover of 1.2, an equity multiplier of 1.3, and an earnings retention ratio of 0.5. What is the firm's internal growth rate?
ROE = (EAT / Sales)(Sales / Total Assets)(Total Assets)
ROE = (0.1)(1.2)(1.3) = 0.156
g = (retention ratio)(ROE) = 0.5(0.156) = 0.078 or 7.8%
作者: honeycfa 时间: 2010-4-22 22:41
Which of the following statements concerning security valuation is least accurate?
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A) |
An investor may determine the required rate of return for the dividend discount model (DDM) by adding a risk premium to the nominal risk-free rate. | |
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B) |
An investor can estimate the growth rate for the dividend discount model (DDM) by multiplying the firm's return on equity (ROE) by the firm's dividend payout ratio. | |
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C) |
Business risk is a component of a country's risk premium. | |
An investor can estimate the growth rate for the DDM by multiplying the firm’s ROE by the retention rate, which is one minus the firm’s dividend payout ratio.
作者: honeycfa 时间: 2010-4-22 22:41
Given the following information, compute the implied dividend growth rate.
- Profit margin = 10.0%
- Total asset turnover = 2.0 times
- Financial leverage = 1.5 times
- Dividend payout ratio = 40.0%
Retention ratio equals 1 – 0.40, or 0.60.
Return on equity equals (10.0%)(2.0)(1.5) = 30.0%.
Dividend growth rate equals (0.60)(30.0%) = 18.0%.
作者: honeycfa 时间: 2010-4-22 22:41
If the return on equity for a firm is 15% and the retention rate is 40%, the firm’s sustainable growth rate is closest to:
g = (RR)(ROE)
= (0.15)(0.40)
= 0.06 or 6%
作者: honeycfa 时间: 2010-4-22 22:41
Which of the following statements concerning security valuation is least accurate?
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A) |
The top-down approach to security valuation starts with an examination of the economy of each country. | |
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B) |
A common stock with no growth in the dividend is valued like preferred stock. | |
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C) |
The retention rate in the dividend discount model is one minus the growth rate. | |
The retention rate is one minus the dividend payout ratio.
作者: honeycfa 时间: 2010-4-22 22:42
All else equal, the price-to-earnings (P/E) ratio of a stable firm will increase if the:
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B) |
dividend payout is decreased. | |
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C) |
long-term growth rate is decreased. | |
The increase in growth rate will increase the P/E ratio of a stable firm and growth rate can be calculated by the formula g = ROE * retention ratio. All else being equal an increase in ROE will therefore increase the P/E ratio. Note that decreasing the dividend payout ratio and decreasing the long term growth rate will both serve to decrease the P/E ratio.
作者: honeycfa 时间: 2010-4-22 22:42
Which of the following is NOT an assumption of the constant growth dividend discount model (DDM)?
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The growth rate of the firm is higher than the overall growth rate of the economy. | |
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B) |
Dividend payout is constant. | |
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Other assumptions of the DDM are: dividends grow at a constant rate and the growth rate continues for an infinite period.
作者: honeycfa 时间: 2010-4-22 22:42
REM Corp.’s return on equity (ROE) is 19.5% and its dividend payout rate is 45%. What is the company’s implied dividend growth rate?
g = (ROE)(RR)
g = (19.5)(1 - 0.45)
g = (0.195)(0.55)
= 0.1073 or 10.73%
作者: honeycfa 时间: 2010-4-22 22:42
In its latest annual report, a company reported the following:
| Net income |
= $1,000,000 |
| Total equity |
= $5,000,000 |
| Total assets |
= $10,000,000 |
| Dividend payout ratio |
= 40% |
Based on the sustainable growth model, the most likely forecast of the company’s future earnings growth rate is:
g = (RR)(ROE)
RR = 1 ? dividend payout ratio = 1 ? 0.4 = 0.6
ROE = NI / Total Equity = 1,000,000 / 5,000,000 = 1 / 5 = 0.2
Note: This is the "simple" calculation of ROE. Since we are only given these inputs, these are what you should use. Also, if given beginning and ending equity balances, use the average in the denominator.
g = (0.6)(0.2) = 0.12 or 12%
[此贴子已经被作者于2010-4-22 22:42:51编辑过]
作者: honeycfa 时间: 2010-4-22 22:43
Assuming past investments are stable and earnings are calculated to allow for maintenance of past earnings power, the firm’s expected dividend growth rate can be estimated by its:
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A) |
sustainable growth rate. | |
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B) |
price to earnings ratio. | |
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Assuming past investments are stable and earnings are calculated to allow for maintenance of past earnings power, then the firm’s expected dividend growth rate (g) can be defined as the firm’s earnings plowback or retention rate (RR) times the return on the equity (ROE) portion of new investment. RR is equal to 1 minus the dividend payout ratio, and ROE equals profit margin times total asset turnover times financial leverage. This growth rate is also called the sustainable growth rate.
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