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1. Doris Wise is a young career woman. She lives in Phoenix, Arizona, where she owns and operates a highly successful modeling agency. Doris manages her modest but rapidly growing investment portfolio, made up mostly of high-grade common stocks. Because she's young and single and has no pressing family requirements, Doris has invested primarily in stocks that offer the potential for attractive capital gains. Her broker recently recommended an auto company stock and sent her some literature and analytical reports to study. One report, prepared by the brokerage house she deals with, provided an up-to-date look at the economy, an extensive study of the auto industry, and an equally extensive review of several auto companies (including the one her broker recommended). She feels strongly about the merits of security analysis and believes it is important to spend time studying a stock before making an investment decision. Questions a. Doris tries to stay informed about the economy on a regular basis. At the present time, most economists agree that the economy, now well into the third year of a recovery, is healthy, with industrial activity remaining strong. What other information about the economy do you think Doris would find helpful in evaluating an auto stock? Prepare a listand be specific. Which 3 items of economic information (from your list) do you feel are most important? Explain. b. In relation to a study of the auto industry, briefly note the importance of each of the following. 1. Auto imports 2. The United Auto Workers union 3. Interest rates 4. The price of a gallon of gas c. A variety of financial ratios and measures are provided about one of the auto companies and its stock. These are incomplete, however, so some additional information will have to be computed. Specifically, we know the following: Net profit margin 15% Total assets $25 billion Earnings per share $3.00 Total asset turnover 1.5 Net working capital $3.4 billion Payout ratio Current liabilities 40% $5 billion Price-to-earnings ratio 12.5 d. Given this information, calculate the following: 1. Sales 2. Net profits after taxes 3. Current ratio 4. Market price of the stock 5. Dividend yield 2. Chris Norton is a young Hollywood writer who is well on his way to television superstardom. After writing several successful television specials, he was recently named the head writer for one of TV's toprated sitcoms. Chris fully realizes that his business is a fickle one and, on the advice of his dad and manager, has decided to set up an investment program. Chris will earn about a half-million dollars this year. Because of his age, income level, and desire to get as big a bang as possible from his investment dollars, he has decided to invest in speculative, high-growth stocks. Chris is currently working with a respected Beverly Hills broker and is in the process of building up a diversified portfolio of speculative stocks. The broker recently sent him information on a hot new issue. She advised Chris to study the numbers and, if he likes them, to buy as many as 1,000 shares of the stock. Among other things, corporate sales for the next 3 years have been forecasted as follows: Year Sales ($ in millions) 1 22.5 2 35.0 3 50.0 The firm has 2.5 million shares of common stock outstanding. They are currently being traded at $70 a share and pay no dividends. The company has a net profit rate of 20%, and its stock has been trading at a P/E of around 40 times earnings. All these operating characteristics are expected to hold in the future. Questions a. Looking first at the stock: 1. Compute the company's net profits and EPS for each of the next 3 years. 2. Compute the price of the stock 3 years from now. 3. Assuming that all expectations hold up and that Chris buys the stock at $70, determine his expected return on this investment. 4. What risks is he facing by buying this stock? Be specific. 5. Should he consider the stock a worthwhile investment candidate? Explain. b. Looking at Chris's investment program in general: 1. What do you think of his investment program? What do you see as its strengths and weaknesses? 2. Are there any suggestions you would make? 3. Do you think Chris should consider adding foreign stocks to his portfolio? Explain. Answers A.) Auto industry stock ought to likewise be evaluated with the respect below: I. Crude oil costs - Lower oil costs will build interest for Cars and so on ii. Unemployment - Decreasing unemployment implies more occupations and subsequently interest for Auto for drive iii. Tax relief given to people to increase their Income cash iv. Interest Rate - Fall in Interest rate will bring down expense of owning automobiles v. Inflation - Fall in interest rates will make merchandise less expensive From above, Interest Rate, Crude oil costs and unemployment will assume a noteworthy part in Automobile demands. B.) 1. Auto imports - Lower import obligations will reduce the expense of imported automobiles which will decrease edges for local manufacturers in this manner reducing benefits and therefore profits and capital additions to shareholders. 2. The United Auto Workers union - Aggressive union will increase the cost of wages and retirement advantages accordingly expanding the expense of autos. 3. Interest Rates - Increased Interest rates make it extreme for buyers to get to purchase automobiles. Automobiles Manufacturer deal with government for lower Interest rates for automobile loans. 4. The cost of a gallon of gas - Increase in Price of fuel increase demands for fuel effective autos. This outcomes in an expansion in R&D consumption and also more fuel productive models C&D.) Given this information, calculate the following: 1. Sales: Total Asset turnover = Sales/Total Assets So Sales = Total Assets Turnover * Total assets = 1.5*25B = 37.50B 2. Net profits after taxes: Net profit margin = NP after tax/Sales So NP After tax = Sales * NP Margin = 37.50*15% = 5.625B 3. Current ratio: Net-working Cap = CA - CL So CA = NWC + CL = 3.4+5 = 8.40B 4. Market price of the stock: PE Ratio = Mkt price per share / EPS So Mkt price per share = EPS * PE Ratio = 12.5*3 = $37.50 5. Dividend yield = EPS*Payout ratio / Mkt price = 3*40% / 37.50 = 3.20% 7.2. Doris Wise is a young career woman. She lives in Phoenix, Arizona, where she owns and operates a highly successful modeling agency. Doris manages her modest but rapidly growing investment portfolio, made up mostly of high-grade common stocks. Because she's young and single and has no pressing family requirements, Doris has invested primarily in stocks that offer the potential for attractive capital gains. Her broker recently recommended an auto company stock and sent her some literature and analytical reports to study. One report, prepared by the brokerage house she deals with, provided an up-to-date look at the economy, an extensive study of the auto industry, and an equally extensive review of several auto companies (including the one her broker recommended). She feels strongly about the merits of security analysis and believes it is important to spend time studying a stock before making an investment decision. a. Doris tries to stay informed about the economy on a regular basis. At the present time, most economists agree that the economy, now well into the third year of a recovery, is healthy, with industrial activity remaining strong. What other information about the economy do you think Doris would find helpful in evaluating an auto stock? Prepare a listand be specific. Which 3 items of economic information (from your list) do you feel are most important? Explain. b. In relation to a study of the auto industry, briefly note the importance of each of the following. 1. Auto imports 2. The United Auto Workers union 3. Interest rates 4. The price of a gallon of gas c. A variety of financial ratios and measures are provided about one of the auto companies and its stock. These are incomplete, however, so some additional information will have to be computed. Specifically, we know the following: Net profit margin 15% Total assets $25 billion Earnings per share $3.00 Total asset turnover 1.5 Net working capital $3.4 billion Payout ratio Current liabilities Price-to-earnings ratio 40% $5 billion 12.5 d. Given this information, calculate the following: 1. Sales 2. Net profits after taxes 3. Current ratio 4. Market price of the stock 5. Dividend yield 7.2 Chris Norton is a young Hollywood writer who is well on his way to television superstardom. After writing several successful television specials, he was recently named the head writer for one of TV's toprated sitcoms. Chris fully realizes that his business is a fickle one and, on the advice of his dad and manager, has decided to set up an investment program. Chris will earn about a half-million dollars this year. Because of his age, income level, and desire to get as big a bang as possible from his investment dollars, he has decided to invest in speculative, high-growth stocks. Chris is currently working with a respected Beverly Hills broker and is in the process of building up a diversified portfolio of speculative stocks. The broker recently sent him information on a hot new issue. She advised Chris to study the numbers and, if he likes them, to buy as many as 1,000 shares of the stock. Among other things, corporate sales for the next 3 years have been forecasted as follows: Year Sales ($ in millions) 1 22.5 2 35.0 3 50.0 The firm has 2.5 million shares of common stock outstanding. They are currently being traded at $70 a share and pay no dividends. The company has a net profit rate of 20%, and its stock has been trading at a P/E of around 40 times earnings. All these operating characteristics are expected to hold in the future. Questions a. Looking first at the stock: 1. Compute the company's net profits and EPS for each of the next 3 years. 2. Compute the price of the stock 3 years from now. 3. Assuming that all expectations hold up and that Chris buys the stock at $70, determine his expected return on this investment. 4. What risks is he facing by buying this stock? Be specific. 5. Should he consider the stock a worthwhile investment candidate? Explain. b. Looking at Chris's investment program in general: 1. What do you think of his investment program? What do you see as its strengths and weaknesses? 2. Are there any suggestions you would make? 3. Do you think Chris should consider adding foreign stocks to his portfolio? Explain. 7.2. Doris Wise is a young career woman. She lives in Phoenix, Arizona, where she owns and operates a highly successful modeling agency. Doris manages her modest but rapidly growing investment portfolio, made up mostly of high-grade common stocks. Because she's young and single and has no pressing family requirements, Doris has invested primarily in stocks that offer the potential for attractive capital gains. Her broker recently recommended an auto company stock and sent her some literature and analytical reports to study. One report, prepared by the brokerage house she deals with, provided an up-to-date look at the economy, an extensive study of the auto industry, and an equally extensive review of several auto companies (including the one her broker recommended). She feels strongly about the merits of security analysis and believes it is important to spend time studying a stock before making an investment decision. a. Doris tries to stay informed about the economy on a regular basis. At the present time, most economists agree that the economy, now well into the third year of a recovery, is healthy, with industrial activity remaining strong. What other information about the economy do you think Doris would find helpful in evaluating an auto stock? Prepare a listand be specific. Which 3 items of economic information (from your list) do you feel are most important? Explain. b. In relation to a study of the auto industry, briefly note the importance of each of the following. 1. Auto imports 2. The United Auto Workers union 3. Interest rates 4. The price of a gallon of gas c. A variety of financial ratios and measures are provided about one of the auto companies and its stock. These are incomplete, however, so some additional information will have to be computed. Specifically, we know the following: Net profit margin 15% Total assets $25 billion Earnings per share $3.00 Total asset turnover 1.5 Net working capital $3.4 billion Payout ratio Current liabilities Price-to-earnings ratio 40% $5 billion 12.5 d. Given this information, calculate the following: 1. Sales 2. Net profits after taxes 3. Current ratio 4. Market price of the stock 5. Dividend yield 7.2 Chris Norton is a young Hollywood writer who is well on his way to television superstardom. After writing several successful television specials, he was recently named the head writer for one of TV's toprated sitcoms. Chris fully realizes that his business is a fickle one and, on the advice of his dad and manager, has decided to set up an investment program. Chris will earn about a half-million dollars this year. Because of his age, income level, and desire to get as big a bang as possible from his investment dollars, he has decided to invest in speculative, high-growth stocks. Chris is currently working with a respected Beverly Hills broker and is in the process of building up a diversified portfolio of speculative stocks. The broker recently sent him information on a hot new issue. She advised Chris to study the numbers and, if he likes them, to buy as many as 1,000 shares of the stock. Among other things, corporate sales for the next 3 years have been forecasted as follows: Year Sales ($ in millions) 1 22.5 2 35.0 3 50.0 The firm has 2.5 million shares of common stock outstanding. They are currently being traded at $70 a share and pay no dividends. The company has a net profit rate of 20%, and its stock has been trading at a P/E of around 40 times earnings. All these operating characteristics are expected to hold in the future. Questions a. Looking first at the stock: 1. Compute the company's net profits and EPS for each of the next 3 years. 2. Compute the price of the stock 3 years from now. 3. Assuming that all expectations hold up and that Chris buys the stock at $70, determine his expected return on this investment. 4. What risks is he facing by buying this stock? Be specific. 5. Should he consider the stock a worthwhile investment candidate? Explain. b. Looking at Chris's investment program in general: 1. What do you think of his investment program? What do you see as its strengths and weaknesses? 2. Are there any suggestions you would make? 3. Do you think Chris should consider adding foreign stocks to his portfolio? Explain. Please add, delete, or make any needed changes to your Stock Trak portfolio. Write a two page, doublespaced paper that describes how your portfolio has changed since it was created. Be sure to address the following questions: Has your portfolio grown or shrunk? What factors contributed to these changes? What was your investment strategy? Why did you make changes and what did they yield? Given what you know now about investing and where your portfolio is now, what would you have done differently? This short paper will serve as your mid-term exam. The stocks that I chose were EA ATVI AMCX 7.2. Doris Wise is a young career woman. She lives in Phoenix, Arizona, where she owns and operates a highly successful modeling agency. Doris manages her modest but rapidly growing investment portfolio, made up mostly of high-grade common stocks. Because she's young and single and has no pressing family requirements, Doris has invested primarily in stocks that offer the potential for attractive capital gains. Her broker recently recommended an auto company stock and sent her some literature and analytical reports to study. One report, prepared by the brokerage house she deals with, provided an up-to-date look at the economy, an extensive study of the auto industry, and an equally extensive review of several auto companies (including the one her broker recommended). She feels strongly about the merits of security analysis and believes it is important to spend time studying a stock before making an investment decision. a. Doris tries to stay informed about the economy on a regular basis. At the present time, most economists agree that the economy, now well into the third year of a recovery, is healthy, with industrial activity remaining strong. What other information about the economy do you think Doris would find helpful in evaluating an auto stock? Prepare a listand be specific. Which 3 items of economic information (from your list) do you feel are most important? Explain. b. In relation to a study of the auto industry, briefly note the importance of each of the following. 1. Auto imports 2. The United Auto Workers union 3. Interest rates 4. The price of a gallon of gas c. A variety of financial ratios and measures are provided about one of the auto companies and its stock. These are incomplete, however, so some additional information will have to be computed. Specifically, we know the following: Net profit margin 15% Total assets $25 billion Earnings per share $3.00 Total asset turnover 1.5 Net working capital $3.4 billion Payout ratio Current liabilities Price-to-earnings ratio 40% $5 billion 12.5 d. Given this information, calculate the following: 1. Sales 2. Net profits after taxes 3. Current ratio 4. Market price of the stock 5. Dividend yield 8.1 Chris Norton is a young Hollywood writer who is well on his way to television superstardom. After writing several successful television specials, he was recently named the head writer for one of TV's toprated sitcoms. Chris fully realizes that his business is a fickle one and, on the advice of his dad and manager, has decided to set up an investment program. Chris will earn about a half-million dollars this year. Because of his age, income level, and desire to get as big a bang as possible from his investment dollars, he has decided to invest in speculative, high-growth stocks. Chris is currently working with a respected Beverly Hills broker and is in the process of building up a diversified portfolio of speculative stocks. The broker recently sent him information on a hot new issue. She advised Chris to study the numbers and, if he likes them, to buy as many as 1,000 shares of the stock. Among other things, corporate sales for the next 3 years have been forecasted as follows: Year Sales ($ in millions) 1 22.5 2 35.0 3 50.0 The firm has 2.5 million shares of common stock outstanding. They are currently being traded at $70 a share and pay no dividends. The company has a net profit rate of 20%, and its stock has been trading at a P/E of around 40 times earnings. All these operating characteristics are expected to hold in the future. Questions a. Looking first at the stock: 1. Compute the company's net profits and EPS for each of the next 3 years. 2. Compute the price of the stock 3 years from now. 3. Assuming that all expectations hold up and that Chris buys the stock at $70, determine his expected return on this investment. 4. What risks is he facing by buying this stock? Be specific. 5. Should he consider the stock a worthwhile investment candidate? Explain. b. Looking at Chris's investment program in general: 1. What do you think of his investment program? What do you see as its strengths and weaknesses? 2. Are there any suggestions you would make? 3. Do you think Chris should consider adding foreign stocks to his portfolio? Explain