luckygiftvn

An analyst gathered the following data for TRK Construction [all amounts in Swiss francs (Sf)]:

Recent share price	Sf 25.00
Shares outstanding	40 million
Market value of debt	Sf 130 million
Cash and marketable securities	Sf 65 million
Investments	Sf 250 million
Net income	Sf 150 million
Interest expense	Sf 8 million
Depreciation and amortization	Sf 11 million
Taxes	Sf 52 million

The EV/EBITDA multiple for TRK Construction is closest to:

A) 2.47x.

B) 4.12x.

C) 3.69x.

---

EBITDA = (net income + interest + taxes + depreciation / amortization)
EV = (market value of common stock + market value of debt – cash and investments)
EBITDA = 150 + 8 + 11 + 52 = Sf 221 million
EV = (25 × 40) + 130 – 65 – 250 = Sf 815 million
EV / EBITDA = 3.69

luckygiftvn

Which of the following factors is a source of differences in cross-border valuation comparisons?

A) Intra-country market indicators.

B) Comparative advantage.

C) Accounting methods.

---

Different accounting conventions make cross-border comparisons for valuation purposes challenging.

luckygiftvn

Which of the following price multiples is most severely damaged by international accounting differences?

A) Price to cash flow from operations (P/CFO).

B) Price to free cash flow to equity (P/FCFE).

C) Enterprise value to earnings before interest, taxes, depreciation, and amortization (EV/EBITDA).

---

EV/EBITDA is the most seriously affect because it is most closely tied to accounting conventions

luckygiftvn

Which of the following factors is NOT a source of differences in cross-border valuation comparisons?

A) Intra-country market indicators.

B) Cultures.

C) Growth opportunities.

---

Intra-country market indicators are not, by definition, cross-border.

luckygiftvn

Which of the following is a common momentum valuation indicator?

A) Dividend yield (D/P).

B) Price to free cash flow to equity (P/FCFE).

C) Relative strength.

---

Relative strength is generally considered a momentum valuation indicator.

luckygiftvn

Which of the following is NOT a common momentum valuation indicator?

A) Earnings surprise.

B) Dividend yield.

C) Relative strength.

---

Dividend yield is not generally considered a momentum valuation indicator.

luckygiftvn

In interpreting the standardized unexpected earnings (SUE) momentum measure, it can be concluded that a given size forecast error is:

A) scaled by the earnings surprise.

B) more meaningful the smaller the historical size of forecast errors.

C) more meaningful the larger the historical size of forecast errors.

---

A given size forecast error is more (less) meaningful the smaller (larger) the historical size of forecast errors.

luckygiftvn

Robert Chan comments to Leslie Singer that Converted Industries’ expected dividend growth rate is 5.0%, dividend payout ratio (g) is 45%, and required return on equity (r) is 10%. Based on a justified trailing P/E ratio compared to the stock's trailing P/E ratio at market of 9.0, Converted Industries is most likely:

A) overvalued.

B) correctly valued.

C) undervalued.

---

Justified trailing P/E = payout ratio * (1 + g) / (r − g). When the expected dividend growth is 5.0%, the justified trailing P/E = 0.45 * (1 + 0.05) / (0.10 − 0.05) = 9.45. This is greater than the market P/E of 9.0.

luckygiftvn

At a CFA society function, Robert Chan comments to Li Chiao that Xanedu Industries’ expected dividend growth rate is 5.5%, dividend payout ratio (g) is 40%, and required return on equity (r) is 12%. Based on a justified leading P/E ratio compared to a market P/E ratio of 8.0, Xanedu Industries is most likely:

A) undervalued.

B) overvalued.

C) correctly valued.

---

Justified Leading P/E = payout ratio / (r − g). When the expected dividend growth is 5.5%, the justified leading P/E = 0.40 / (0.12 − 0.055) = 6.15. This is less than the market P/E of 8.0.

luckygiftvn

Leslie Singer comments to Robert Chan that Dreamtime Industries’ expected dividend growth rate is 5.0%, ROE is 14%, and required return on equity (r) is 10%. Based on a justified P/B ratio compared to a P/B ratio (based on market price per share) of 1.60, Dreamtime Industries is most likely:

A) overvalued.

B) undervalued.

C) correctly valued.

---

Justified P/B = (ROE − g) / (r − g). When the expected dividend growth is 5.0%, the justified P/B = (0.14 − 0.05) / (0.10 − 0.05) = 1.80. This is greater than the market P/B of 1.60.