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LOS b: Describe and estimate the expected earnings per share (EPS) and earnings multiplier for a company and use the multiple to make an investment decision regarding the company.
Q1. Assume the following information for a stock:
Beta coefficient = 1.50
Risk-free rate = 6%
Expected rate of return on market = 14%
Dividend payout ratio = 30%
Expected dividend growth rate = 11%
The estimated earnings multiplier (P/E ratio) is closest to:
A) 4.29.
B) 3.33.
C) 10.00
Q2. Given a beta of 1.55 and a risk-ree rate of 8%, what is the expected rate of return, assuming a 14% market return?
A) 17.3%.
B) 12.4%.
C) 20.4%.
Q3. 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) 21.54.
B) 12.31.
C) 11.61.
Q4. 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) 7.60.
B) 9.14.
C) 7.98.
Q5. All else equal, a firm will have a higher Price-to-Earnings (P/E) multiple if:
A) the stock’s beta is lower.
B) return on equity (ROE) is lower.
C) retention ratio is higher.
Q6. 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) 8.1.
C) 10.0.
Q7. 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) $2.54.
B) $3.11.
C) $0.40.
Q8. An analyst gathered the following information on Roan Mountain Amusement Park:
- Sales per share = $9.29
- Earnings before interest, taxes, depreciation, and amortization (EBITDA) = 65%
- Interest expense per share = $1.26
- Depreciation expense per share = $4.12
- Marginal tax rate = 43%
Roan Mountain’s expected earnings per share is closest to:
A) $0.22.
B) $0.38.
C) $0.47.
Q9. A stock has a required rate of return of 15%, a constant growth rate of 10%, and a dividend payout ratio of 45%. The stock’s price-earnings ratio should be:
A) 4.5 times.
B) 3.0 times.
C) 9.0 times.
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发表于 2009-3-2 14:39
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