$28.36.$29.08.Question not answered= 2.82 + 2.65 + 2.48 + 21.70 = $29.65CFA Level I“Equity Valuation: Concepts and Basic Tools,” by John J. Nagorniak and Stephen E. WilcoxSection 4.3
Question14 of 30An investor gathers the following data.YearEarnings perShare ($)Dividends perShare ($)ROE20142013201220113.203.602.442.501.921.801.711.6012%17%13%15%To estimate the stock’s justified forward P/E, the investor prefers to use the compounded annual earnings growth and the average of the payout ratios over the relevant period (i.e., 2011–2014).If the investor uses 11.5% as her required rate of return, the stock’s justified forward P/E is closestto:12.21.10.Question not answeredP0/E1= p/(r– g)Earnings growth rate (g) over the period of 2011–2014 = 2.50(1 + g)3= 3.20; g = 8.6%.Payout ratio (p) computation: for example, 2014: 1.92/3.20 = 0.60.Average payout ratio = (0.60 + 0.50 + 0.70 + 0.64)/4 = 0.61.P0/E1= p/(r– g); = 0.61/(0.115 – 0.086) = 0.61/0.029 = 21.0.CFA Level I“Equity Valuation: Concepts and Basic Tools,” John J. Nagorniak and Stephen E. WilcoxSection 5.1Question15 of 30Which of the following multiples is mostuseful when comparing companies with significant differences in capital structure?Price-to-cash flow ratioPrice-to-book ratioEV/EBITDAQuestion not answeredThe EV/EBITDA (enterprise value/earnings before interest, taxes, depreciation, and amortization) approach is most useful when comparing companies with significant differencesin capital structure. EBITDA is computed prior to payment to any of the company’s financial stakeholders and is not affected by the amount of debt leverage.CFA Level I“Equity Valuation: Concepts and Basic Tools,” John J. Nagorniak and Stephen E. WilcoxSection 5.4Question16 of 30Which of the following statements is most accurate about recessions?Consumers are more likely to defer purchases of products of defensive companies than of cyclical companies.
If severe the demand for products of defensive companies will eventually be adversely affected.Non-cyclical companies tend to underperform cyclical companies.Question not answeredThe impact of severe recessions usually reaches all parts of the economy and affects cyclical and defensive companies.CFA Level I"Introduction to Industry and Company Analysis," Patrick W. Dorsey, Anthony M. Fiore, and Ian Rossa O'ReillySection 3.2Question17 of 30An equity portfolio manager is evaluating her sector allocation strategy for the upcoming year.She expects the global economy to experience a slowdown period for the next two years. Furthermore, she believes that companies will be facing diminishing growth rates with respectto revenues and profits. On the basis of these beliefs, the portfolio manager will most likelyoverweight:materials.autos.consumer staples.Question not answeredIn periods of economic slowdowns, the manager would tend to overweight in non-cyclical companies, such as consumer staples.
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- Fall '13
- Dividend yield, P/E ratio, Stephen E. Wilcox, John J. Nagorniak