LOS e: Evaluate two common approaches of equity analysis (ratio analysis and discounted cash flow models including the franchise value model) and demonstrate how to find attractively priced stocks by using either of these methods.
Q1. Which of the following is least likely to be characteristic of a firm earning excess risk-adjusted return and its industry?
A) A franchise factor equal to zero.
B) A full flow-through firm.
C) ROE in excess of the required rate of return.
Q2. Global Investments Research Institute (GIRI) is a Canadian firm that gathers international data and conducts research on various industries throughout the world. The firm specializes in conducting top-down analysis emphasizing economic and industry data for international investments.
Joseph Mathias, an analyst for GIRI, is putting together a research report detailing the competitive environment of the toy manufacturing industry in India. In preparation for his report and analysis, Mathias has compiled the following data on the five toy manufacturing firms in India:
Figure 1: Toy Manufacturing Industry Data for India
|
Firm |
Market Share |
Return on Equity (ROE) |
Dividend Payout |
Weighted Average Cost of Capital (WACC) |
Dividends Paid(000s) |
|
A |
0.15 |
0.25 |
0.20 |
0.12 |
1,000 |
|
B |
0.10 |
0.22 |
0.35 |
0.15 |
1,500 |
|
C |
0.05 |
0.18 |
0.00 |
0.18 |
0 |
|
D |
0.30 |
0.25 |
0.25 |
0.13 |
3,500 |
|
E |
0.40 |
0.26 |
0.30 |
0.11 |
5,000 |
As Mathias is analyzing the Indian toy industry data for his report, Beatrice Hiatt, another analyst at GIRI, stops by his office. Hiatt tells Mathias that she has been working on a project involving growth theory and how different countries create value through the growth rate in output. During the course of their conversation, the following statements are made:
Mathias: “As the amount of capital deployed in the Indian toy industry increases, diminishing returns are not likely because they will be offset by gains from experience with the production process.”
Hiatt: “The savings rate in India supports the long-term growth rate in gross domestic product (GDP), but not the long-term level of GDP.”
GIRI uses the Herfindahl index to summarize the degree of competition within an industry. Given the data provided above, the Herfindahl index for the toy industry in India is:
A) 0.015, indicating average concentration.
B) 0.285, indicating low concentration.
C) 0.285, indicating high concentration.
Q3. GIRI calculates both a franchise price-to-earnings (P/E) value and an intrinsic P/E value for individual firms in their research reports. The franchise P/E and intrinsic P/E respectively for Firm B are:
A) 43.35; 50.02.
B) 6.67; 36.68.
C) 20.43; 27.10.
Q4. Mathias is comparing the effects of inflation on the value of Firm D and of similar firms around the world. While researching the toy manufacturing industry, Mathias has discovered that a local Canadian toy manufacturer has financial characteristics that are virtually identical with those of Firm D. Assume investors require a real rate of return of 8% for firms similar to Firm D. What is the estimated P/E ratio for Firm D, and is the value of the Canadian firm likely higher or lower than Firm D?
Firm D’s EstimatedP/E Ratio Relative Value of Canadian Firm
A) 10.87 Higher
B) 10.87 Lower
C) 7.81 Higher
Q5. 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) potential franchise value.
B) a high franchise P/E value.
C) negative franchise value.
Q6. 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) Tax rate.
C) Rate of return demanded by investors.
Q7. Which of the following statements about the franchise value method is TRUE?
A) The franchise factor accounts for the required returns from new investments.
B) 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.
C) The franchise factor accounts for the present value of the excess returns from new investments.
[此贴子已经被作者于2009-3-6 13:51:59编辑过]
LOS e: Evaluate two common approaches of equity analysis (ratio analysis and discounted cash flow models including the franchise value model) and demonstrate how to find attractively priced stocks by using either of these methods.
Q1. Which of the following is least likely to be characteristic of a firm earning excess risk-adjusted return and its industry?
A) A franchise factor equal to zero.
B) A full flow-through firm.
C) ROE in excess of the required rate of return.
Q2. Global Investments Research Institute (GIRI) is a Canadian firm that gathers international data and conducts research on various industries throughout the world. The firm specializes in conducting top-down analysis emphasizing economic and industry data for international investments.
Joseph Mathias, an analyst for GIRI, is putting together a research report detailing the competitive environment of the toy manufacturing industry in India. In preparation for his report and analysis, Mathias has compiled the following data on the five toy manufacturing firms in India:
Figure 1: Toy Manufacturing Industry Data for India
|
Firm |
Market Share |
Return on Equity (ROE) |
Dividend Payout |
Weighted Average Cost of Capital (WACC) |
Dividends Paid(000s) |
|
A |
0.15 |
0.25 |
0.20 |
0.12 |
1,000 |
|
B |
0.10 |
0.22 |
0.35 |
0.15 |
1,500 |
|
C |
0.05 |
0.18 |
0.00 |
0.18 |
0 |
|
D |
0.30 |
0.25 |
0.25 |
0.13 |
3,500 |
|
E |
0.40 |
0.26 |
0.30 |
0.11 |
5,000 |
As Mathias is analyzing the Indian toy industry data for his report, Beatrice Hiatt, another analyst at GIRI, stops by his office. Hiatt tells Mathias that she has been working on a project involving growth theory and how different countries create value through the growth rate in output. During the course of their conversation, the following statements are made:
Mathias: “As the amount of capital deployed in the Indian toy industry increases, diminishing returns are not likely because they will be offset by gains from experience with the production process.”
Hiatt: “The savings rate in India supports the long-term growth rate in gross domestic product (GDP), but not the long-term level of GDP.”
GIRI uses the Herfindahl index to summarize the degree of competition within an industry. Given the data provided above, the Herfindahl index for the toy industry in India is:
A) 0.015, indicating average concentration.
B) 0.285, indicating low concentration.
C) 0.285, indicating high concentration.
Q3. GIRI calculates both a franchise price-to-earnings (P/E) value and an intrinsic P/E value for individual firms in their research reports. The franchise P/E and intrinsic P/E respectively for Firm B are:
A) 43.35; 50.02.
B) 6.67; 36.68.
C) 20.43; 27.10.
Q4. Mathias is comparing the effects of inflation on the value of Firm D and of similar firms around the world. While researching the toy manufacturing industry, Mathias has discovered that a local Canadian toy manufacturer has financial characteristics that are virtually identical with those of Firm D. Assume investors require a real rate of return of 8% for firms similar to Firm D. What is the estimated P/E ratio for Firm D, and is the value of the Canadian firm likely higher or lower than Firm D?
Firm D’s EstimatedP/E Ratio Relative Value of Canadian Firm
A) 10.87 Higher
B) 10.87 Lower
C) 7.81 Higher
Q5. 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) potential franchise value.
B) a high franchise P/E value.
C) negative franchise value.
Q6. 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) Tax rate.
C) Rate of return demanded by investors.
Q7. Which of the following statements about the franchise value method is TRUE?
A) The franchise factor accounts for the required returns from new investments.
B) 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.
C) The franchise factor accounts for the present value of the excess returns from new investments.
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