Substantial management costs Homogeneity High liquidity Question not answered

Substantial management costs homogeneity high

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Substantial management costsHomogeneityHigh liquidityQuestion not answeredReal assets are characterized by illiquidity, not high liquidity. The heterogeneity of real assets, their illiquidity, and the substantial costs of managing them are all factors that complicate the valuation of real assets.CFA Level I“Market Organization and Structure,” by Larry Harris Section 3.6Question24 of 30A behavioral bias in which an investor assesses probabilities of outcomes depending on how similar they are to the current state is called:conservatism.representativeness.narrow framing.Question not answeredAn investor assessing probabilities of outcomes depending on how similar they are to the current state is called representativeness.CFA Level I“Market Efficiency,” by W. Sean Cleary, Howard J. Atkinson, and Pamela Peterson DrakeSection 5.3Question25 of 30A firm reports negative earnings for the year just ended. The price multiple of the firm's stock that is least likelyto be meaningful is:leading price to earnings.price to cash flow.
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trailing price to earnings.Question not answeredNegative earnings in the last year result in a negative ratio of trailing price to earnings and are not meaningful. Practitioners may use the ratio of (1) current price to cash flow or (2) leading price to earnings by replacing last year’s loss with forecasted earnings.CFA Level I “Equity Valuation: Concepts and Basic Tools,” by John J. Nagorniak and Stephen E. WilcoxSection 5Question26 of 30Which of the following best describes an advantage of the EV/EBITDA multiple for valuing equity? An advantage is that:it does not require the market value of debt.EBITDA is a proxy for operating cash flow.the multiple must be positive.Question not answeredAn advantage of EBITDA is that it is a proxy for operating cashflow because it excludes depreciation and amortization.CFA Level I"Equity Valuation: Concepts and Basic Tools," John J. Nagorniak, and Stephen E. WilcoxSection 5.4Question27 of 30An investor wants to determine the intrinsic value of the common stock for a company with the following characteristics:The firm maintains a constant dividend payout ratio.Goodwill and patents account for a high proportion of the firm’s assets.The firm’s revenues and earnings are highly correlated with the business cycle.Furthermore, the investor focuses on the firm’s capacity to pay dividends rather than expected dividends. Considering the characteristics, the investor will most likelyuse which of the following valuation models?Asset-based valuation modelGordon dividend growth modelFree cash flow to equity modelQuestion not answeredThe free cash flow to equity (FCFE) model is a measure of the firm’s dividend-paying capacitywhich should be reflected in the cash flow estimates rather than expected dividends. Analysts must make projections of financials to forecast future FCFE, and thus the constant growth assumption, as in the Gordon growth model, is not an issue. An asset-based valuation model
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  • Fall '13
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  • Dividend yield, P/E ratio, Stephen E. Wilcox, John J. Nagorniak

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