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investment analysis portfolio
Questions and Answers of
Investment Analysis Portfolio
Venture capital investments:A. Can be publicly traded.B. Do not require a long-term commitment of funds.C. Provide mezzanine financing to early-stage companies.
Calculate the book value of a company using the following information:A. h4,500,000 B. h5,200,000 C. h6,500,000 Number of shares outstanding 100,000 Price per share 52 Total assets Total liabilities
Calculate the 2009 return on equity (ROE) of a stable company using the following data:A. 10.0%B. 13.3%C. 16.7% Total sales 2,500,000 Net income 2,000,000 Beginning of year total assets 50,000,000
Which of the following statements most accurately describes one difference between private and public equity firms?A. Private equity firms are focused more on short-term results than public firms.B.
Emerging markets have benefited from recent trends in international markets. Which of the following has not been a benefit of these trends?A. Emerging market companies do not have to worry about a
When investing in unsponsored depository receipts, the voting rights to the shares in the trust belong to:A. The depository bank.B. The investors in the depository receipts.C. The issuer of the
A basket of listed depository receipts, or an exchange-traded fund, would most likely be used for:A. Gaining exposure to a single equity.B. Hedging exposure to a single equity.C. Gaining exposure to
Which of the following is incorrect about the risk of an equity security? The risk of an equity security is:A. Based on the uncertainty of its cash flows.B. Based on the uncertainty of its future
Which of the following is not a primary goal of raising equity capital?A. To finance the purchase of long-lived assets.B. To finance the company’s revenue-generating activities.C. To ensure that
With respect to Level III sponsored ADRs, which of the following is least likely to be accurate? They:A. Have low listing fees.B. Are traded on the NYSE, NASDAQ, and AMEX.C. Are used to raise equity
If a U.S.-based investor purchases a euro-denominated ETF and the euro subsequently depreciates in value relative to the dollar, the investor will have a total return that is:A. Lower than the
Calculate the total return on a share of equity using the following data:Purchase price: $50 Sale price: $42 Dividend paid during holding period: $2 A. –12.0%B. –14.3%C. –16.0%
From an investor’s point of view, which of the following equity securities is the least risky?A. Putable preference shares.B. Callable preference shares.C. Noncallable preference shares.
Which of the following is least likely to be a reason for a company to issue equity securities on the primary market?A. To raise capital.B. To increase liquidity.C. To increase return on equity.
Which of the following statements is most accurate in describing a company’s book value?A. Book value increases when a company retains its net income.B. Book value is usually equal to the
Which of the following statements is least accurate in describing a company’s market value?A. Management’s decisions do not influence the company’s market value.B. Increases in book value may
Holding all other factors constant, which of the following situations will most likely lead to an increase in a company’s return on equity?A. The market price of the company’s shares increases.B.
The text defines 10 representative sectors, repeated here in Exhibit 9-1. Suppose the classification system is based on the criterion of a company’s principal business activity as judged primarily
Which of the following measures is the most difficult to estimate?A. The cost of debt.B. The cost of equity.C. Investors’ required rate of return on debt.
A company’s cost of equity is often used as a proxy for investors’:A. Average required rate of return.B. Minimum required rate of return.C. Maximum required rate of return.
Which of the following is least likely to involve industry analysis?A. Sector rotation strategy.B. Top-down fundamental investing.C. Tactical asset allocation strategy.
1. The GICS classification system classifies companies on the basis of a company’s primary business activity as measured primarily by:A. Assets.B. Income.C. Revenue.2. Which of the following is
A sector rotation strategy involves investing in a sector by:A. Making regular investments in it.B. Investing in a preselected group of sectors on a rotating basis.C. Timing investment to take
Which of the following information about a company would most likely depend on an industry analysis? The company’s:A. Dividend policy.B. Competitive environment.C. Trends in corporate expenses.
The GICS semiconductor and semiconductor equipment industry (453010) has two subindustries—the semiconductor equipment subindustry (45301010) and the semiconductors subindustry (45301020). Members
Which industry classification system uses a three-tier classification system?A. Russell Global Sectors.B. Industry Classification Benchmark.C. Global Industry Classification Standard.
U.S. shipments of prefabricated housing (precut, modular housing) declined sharply in 1999–2004 as the abundant availability of low-cost mortgage financing and other factors led individuals to
In which sector would a manufacturer of personal care products be classified?A. Health care.B. Consumer staples.C. Consumer discretionary.
1. An industry experiencing slow growth and high prices is best characterized as being in the:A. Mature stage.B. Shakeout stage.C. Embryonic stage.2. Which of the following statements about the
Which of the following statements about commercial and government industry classification systems is most accurate?A. Many commercial classification systems include private for-profit companies.B.
1. Which of the following industries is most affected by government regulation?A. Oil services.B. Pharmaceuticals.C. Confections and candy.2. Which of the following industries is least affected by
Which of the following is not a limitation of the cyclical/noncyclical descriptive approach to classifying companies?A. A cyclical company may have a growth component in it.B. Business-cycle
In 1870, women accounted for only 15 percent of the workforce in the United States outside the home. By 1950, after two world wars and the Great Depression, this figure had risen to 30 percent (it
A company that is sensitive to the business cycle would most likely:A. Not have growth opportunities.B. Experience below-average fluctuation in demand.C. Sell products that the customer can purchase
Which of the following factors would most likely be a limitation of applying businesscycle analysis to global industry analysis?A. Some industries are relatively insensitive to the business cycle.B.
Which of the following statements about peer groups is most accurate?A. Constructing a peer group for a company follows a standardized process.B. Commercial industry classification systems often
With regard to forming a company’s peer group, which of the following statements is not correct?A. Comments from the management of the company about competitors are generally not used when
When selecting companies for inclusion in a peer group, a company operating in three different business segments would:A. Be in only one peer group.B. Possibly be in more than one peer group.C. Not
An industry that most likely has both high barriers to entry and high barriers to exit is the:A. Restaurant industry.B. Advertising industry.C. Automobile industry.
Which factor is most likely associated with stable market share?A. Low switching costs.B. Low barriers to entry.C. Slow pace of product innovation.
Which of the following companies most likely has the greatest ability to quickly increase its capacity?A. Restaurant.B. Steel producer.C. Legal services provider.
A population that is rapidly aging would most likely cause the growth rate of the industry producing eyeglasses and contact lenses to:A. Decrease.B. Increase.C. Not change.
If over a long period of time a country’s average level of educational accomplishment increases, this development would most likely lead to the country’s amount of income spent on consumer
If the technology for an industry involves high fixed capital investment, then one way to seek higher profit growth is by pursuing:A. Economies of scale.B. Diseconomies of scale.C. Removal of
Which of the following life-cycle phases is typically characterized by high prices?A. Mature.B. Growth.C. Embryonic.
In which of the following life-cycle phases are price wars most likely to be absent?A. Mature.B. Decline.C. Growth.
When graphically depicting the life-cycle model for an industry as a curve, the variables on the axes are:A. Price and time.B. Demand and time.C. Demand and stage of the life cycle.
Which of the following is most likely a characteristic of a concentrated industry?A. Infrequent, tacit coordination.B. Difficulty in monitoring other industry members.C. Industry members attempting
Which of the following industry characteristics is generally least likely to produce high returns on capital?A. High barriers to entry.B. High degree of concentration.C. Short lead time to build new
An industry with high barriers to entry and weak pricing power most likely has:A. High barriers to exit.B. Stable market shares.C. Significant numbers of issued patents.
Economic value is created for an industry’s shareholders when the industry earns a return:A. Below the cost of capital.B. Equal to the cost of capital.C. Above the cost of capital.
Which of the following is not one of Porter’s five forces?A. Intensity of rivalry.B. Bargaining power of suppliers.C. Threat of government intervention.
Which of the following industries is most likely to be characterized as concentrated with strong pricing power?A. Asset management.B. Alcoholic beverages.C. Household and personal products.
Which of the following industries is most likely to be considered to have the lowest barriers to entry?A. Oil services.B. Confections and candy.C. Branded pharmaceuticals.
With respect to competitive strategy, a company with a successful cost leadership strategy is most likely characterized by:A. A low cost of capital.B. Reduced market share.C. The ability to offer
When conducting a company analysis, the analysis of demand for a company’s product is least likely to consider the:A. Company’s cost structure.B. Motivations of the customer base.C. Product’s
Which of the following statements about company analysis is most accurate?A. The complexity of spreadsheet modeling ensures precise forecasts of financial statements.B. The interpretation of
An analyst estimates the intrinsic value of a stock to be in the range of €17.85 to €21.45.The current market price of the stock is €24.35. This stock is most likely:A. Overvalued.B.
An analyst determines the intrinsic value of an equity security to be equal to \($55\). If the current price is \($47\), the equity is most likely:A. Undervalued.B. Fairly valued.C. Overvalued.
1. An analyst finds that all the securities analyzed have estimated values higher than their market prices. The securities all appear to be:A. Overvalued.B. Undervalued.C. Fairly valued.2. An analyst
Company data for dividend per share (DPS), earnings per share (EPS), share price, and price-to-earnings ratio (P/E) for the most recent five years are presented in Exhibit 10-9.In addition, estimates
The best model to use when valuing a young dividend-paying company that is just entering the growth phase is most likely the:A. Gordon growth model.B. Two-stage dividend discount model.C. Three-stage
1. An analyst is estimating the intrinsic value of a new company. The analyst has one year of financial statements for the company and has calculated the average values of a variety of price
In asset-based valuation models, the intrinsic value of a common share of stock is based on the:A. Estimated market value of the company’s assets.B. Estimated market value of the company’s assets
For the next three years, the annual dividends of a stock are expected to be €2.00,€2.10, and €2.20. The stock price is expected to be h20.00 at the end of three years. If the required rate of
Case 1: Noncallable, Nonconvertible, Perpetual Preferred Shares The following facts concerning the Union Electric Company 4.75 percent perpetual preferred shares (CUSIP identifier: 906548821) are as
Which of the following is most likely used in a present value model?A. Enterprise value.B. Price to free cash flow.C. Free cash flow to equity.
1. An investor expects a share to pay dividends of $3.00 and $3.15 at the end of Years 1 and 2, respectively. At the end of the second year, the investor expects the shares to trade at $40.00. The
Book value is least likely to be considered when using:A. A multiplier model.B. An asset-based valuation model.C. A present value model.
Total S.A. (Euronext Paris: FP), one of France’s largest corporations and the world’s fifth-largest publicly traded integrated petroleum company, operates in more than 130 countries. Total
An analyst is attempting to calculate the intrinsic value of a company and has gathered the following company data: EBITDA, total market value, and market value of cash and short-term investments,
An analyst who bases the calculation of intrinsic value on dividend-paying capacity rather than expected dividends will most likely use the:A. Dividend discount model.B. Free cash flow to equity
A company does not currently pay a dividend but is expected to begin to do so in five years (at t=5). The first dividend is expected to be $4.00 and to be received five years from today. That
An investor expects to purchase shares of common stock today and sell them after two years. The investor has estimated dividends for the next two years, D1 and D2, and the selling price of the stock
The current dividend, D0, is $5.00. Growth is expected to be 10 percent a year for three years and then 5 percent thereafter. The required rate of return is 15 percent. Estimate the intrinsic value.
Petroleo Brasileiro SA, commonly known as Petrobras (BOVESPA: PETR), was once labeled “the most expensive oil company” by Bloomberg.com. Data for Petrobras and the oil industry, including the
In the free-cash-flow-to-equity (FCFE) model, the intrinsic value of a share of stock is calculated as:A. The present value of future expected FCFE.B. The present value of future expected FCFE plus
Heinrich Gladisch, CFA, is estimating the justified forward P/E for Nestle´ (SIX:NESN), one of the world’s leading nutrition and health companies. Gladisch notes that sales for 2008 were SFr109.9
With respect to present value models, which of the following statements is most accurate?A. Present value models can be used only if a stock pays a dividend.B. Present value models can be used only
As noted previously, P/E is a price multiple frequently used by analysts. Using P/E in the method of comparables can be problematic, however, as a result of business cycle effects on EPS. An
A Canadian life insurance company has an issue of 4.80 percent, $25 par value, perpetual, nonconvertible, noncallable preferred shares outstanding. The required rate of return on similar issues is
Incorporated in the Netherlands, the European Aeronautic Defense and Space Company, or EADS (Euronext Paris: EAD) is a dominant aerospace company in Europe. Its largest subsidiary, Airbus S.A.S., is
Two analysts estimating the value of a nonconvertible, noncallable, perpetual preferred stock with a constant dividend arrive at different estimated values. The most likely reason for the difference
Canon Inc. (TSE: 7751) is a leading worldwide manufacturer of business machines, cameras, and optical products. Canon was founded in 1937 as a camera manufacturer and is incorporated in Tokyo. The
The Beasley Corporation has just paid a dividend of $1.75 per share. If the required rate of return is 12.3 percent per year and dividends are expected to grow indefinitely at a constant rate of 9.2
Exhibit 10-8 presents data for nine major mining companies. Based on the information in Exhibit 10-8, which two mining companies seem to be the most undervalued? EXHIBIT 10-8 Data for Nine Major
An analyst gathers or estimates the following information about a stock:Based on a dividend discount model, the stock is most likely:A. Undervalued.B. Fairly valued.C. Overvalued. Current price per
An investor is considering the purchase of a common stock with a $2.00 annual dividend.The dividend is expected to grow at a rate of 4 percent annually. If the investor’s required rate of return is
A family owns a laundry and the real estate on which the laundry stands. The real estate is collateral for an outstanding loan of $100,000. How can asset-based valuation be used to value this
An analyst is attempting to value shares of the Dominion Company. The company has just paid a dividend of $0.58 per share. Dividends are expected to grow by 20 percent next year and 15 percent the
The business being valued is a restaurant that serves breakfast and lunch. The owner/proprietor wants to sell the business and retire. The restaurant space is rented, not owned. This particular
Hideki Corporation has just paid a dividend of ¥450 per share. Annual dividends are expected to grow at the rate of 4 percent per year over the next four years. At the end of four years, shares of
Consider the value of an airline company that has few routes, high labor and other operating costs, has stopped paying dividends, and is losing millions of dollars each year. Using most valuation
The Gordon growth model can be used to value dividend-paying companies that are:A. Expected to grow very fast.B. In a mature phase of growth.C. Very sensitive to the business cycle.
An equity analyst has been asked to estimate the intrinsic value of the common stock of Omega Corporation, a leading manufacturer of automobile seats. Omega is in a mature industry, and both its
A price-to-earnings ratio that is derived from the Gordon growth model is inversely related to the:A. Growth rate.B. Dividend payout ratio.C. Required rate of return.
An analyst has prepared a table of the average trailing 12-month price-to-earning (P/E), price-to-cash flow (P/CF), and price-to-sales (P/S) for the Tanaka Corporation for the years 2005 to 2008.As
The primary difference between P/E multiples based on comparables and P/E multiples based on fundamentals is that fundamentals-based P/Es take into account:A. Future expectations.B. The law of one
An analyst makes the following statement: “Use of P/E and other multiples for analysis is not effective because the multiples are based on historical data and because not all companies have
An analyst has gathered the following information for the Oudin Corporation:Expected earnings per share = €5.70 Expected dividends per share = €2.70 Dividends are expected to grow at 2.75 percent
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