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LOS g: Calculate the justified leading and trailing P/Es based on fundamentals using the Gordon growth model. ffice ffice" />
Q1. If an asset’s beta is 0.8, the expected return on the equity market is 10.0%, and the appropriate discount rate for the Gordon model is 9.0%, what is the risk-free rate?
A) 5.00%.
B) 6.50%.
C) 2.50%.
Correct answer is A)
Required return = risk-free rate + beta (expected equity market return – risk-free rate)
9% = risk-free rate + 0.8(0.10 – risk-free rate)
9% = 0.08 + 0.2(risk-free rate)
1% / 0.2 = risk-free rate = 0.05 or 5%
Q2. Stan Bellton, CFA, is preparing a report on TWR, Inc. Bellton’s supervisor has requested that Bellton include a justified trailing price-to-earnings (P/E) ratio based on the following information:
Current earnings per share (EPS) = $3.50.
Dividend Payout Ratio = 0.60.
Required return for TRW = 0.15.
Expected constant growth rate for dividends = 0.05.
TWR’s justified trailing P/E ratio is closest to:
A) 4.0.
B) 6.0.
C) 6.3.
Correct answer is C)
The dividend payout ratio (1 – b) is 0.60, so the retention ratio (b) is 0.4.
Q3. A firm has the following characteristics:
- Current share price $100.00.
- Next year's earnings $3.50.
- Next year's dividend $0.75.
- Growth rate 11%.
- Required return 13%.
Based on this information and the Gordon growth model, what is the firm’s justified leading price to earnings (P/E) ratio?
A) 10.7.
B) 11.3.
C) 8.7.
Correct answer is A)
The justified leading P/E is 10.7:
P0 / E1 = ($0.75 / $3.50) / (0.13 – 0.11) = 10.714
Q4. A firm has the following characteristics:
- Current share price $100.00.
- One-year earnings $3.50.
- One-year dividend $0.75.
- Required return 13%.
- Justified leading price to earnings 10.
Based on the dividend discount model, what is the firm’s assumed growth rate?
A) 10.9%.
B) 12.4%.
C) 8.6%.
Correct answer is A)
The assumed growth rate is 10.9%:
P0 / E1 = ($0.75/$3.50) / (0.13 – g) = 10, g = 10.86%
Q5. A firm has the following characteristics:
- Current share price $100.00.
- Current earnings $3.50.
- Current dividend $0.75.
- Growth rate 11%.
- Required return 13%.
Based on this information and the Gordon growth model, what is the firm’s justified trailing price to earnings (P/E) ratio?
A) 8.9.
B) 11.9.
C) 11.3.
Correct answer is B)
The justified trailing P/E is 11.9:
P0 / E0 = [($0.75)(1 + 0.11)/$3.50] / (0.13 – 0.11) = 11.8929
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发表于 2009-3-6 16:22
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