HW5_Answer KEY - NAME: _ EC370 Winter 2009 HW5 Answer KEY...

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1 NAME: ________________________________ EC370 – Winter 2009 HW5 Answer KEY Write your answers to the multiple choice questions in the appropriate space using CAPITAL LETTERS. 1) B 6) D 11) C 16) D 21) B 26) D 2) D 7) A 12) D 17) A 22) B 27) C 3) A 8) A 13) D 18) D 23) A 28) B 4) C 9) D 14) D 19) C 24) D 29) D 5) A 10) B 15) A 20) A 25) B 30) A Short Answer Questions. 1) Why might discounted cash flow valuation be difficult to perform for the following firms? a. A private firm, where the owner is planning to sell the firm. With DCF, it would difficult to determine to what extent the success of the company was due to the proprietor’s skills, contacts, etc. b. A troubled firm that is in the process of restructuring its financial mix and selling some of its assets. In this case, historical values will have little meaning. Altering its assets will likely impact earnings. Additionally, changing the financial structure of the company is sure to render historical data on expenses and income useless. 2) Suppose Charlene reads the recent employment report and concludes the future of America is health care. Concluding that baby boomers are the driver of demand in this market, Charlene concludes the future of baby boomers is plastic hips. As such Charlene calculates recent price- earnings ratios for comparable firms to help determine the best investment: Firm PE Ratio St. Jude Medical 33.46 Hologic 166.99 Patterson Companies 11.70 Baxter International 18.32 C.R. Bard 21.17 ResMed 26.42 Immucor
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This note was uploaded on 10/17/2009 for the course EC 370 taught by Professor Staff during the Spring '08 term at University of Oregon.

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HW5_Answer KEY - NAME: _ EC370 Winter 2009 HW5 Answer KEY...

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