Hi Need help with answering questions 13-4,5,7. Last tab is for references used. Questions are in the tabs. Original answers only.

D/E : k: g: 60.00% 11.00% 5.00% a) Current earnings multiplier : Now, D/E changes to b) P/E : Inflation increases by Growth rate increases by Now, k = Now,g = c) Expected P/E : 10.00 50.00% 8.33 3.00% 2.00% 14.33% 7.10% 8.30 Inflation decreases by Growth rate decreases by 3.00% 1.00% Now, k = Now,g = d) Expected P/E : 7.77% 3.96% 15.76 Problem 7 Sales Depreciation Int exp Calculation of EPS: EBIT Margin Tax rate : EBIT Profit before taxes Less : Taxes EPS : D/E 1,450.00 58.00 28.00 11.00% 32.00% 159.50 73.50 23.52 49.98 12.00% 32.00% 174.00 88.00 28.16 59.84 13.00% 32.00% 188.50 102.50 32.80 69.70 Pessimistic Consensus Optimistic 0.65 0.55 0.45 Retention ratio : ROE ROE) 0.35 0.11 0.0385 0.45 0.13 0.0585 0.55 0.15 0.0825 Nominal RFR Risk premium k: P/E EPS : 0.10 0.05 0.15 5.83 51.90 0.09 0.04 0.13 7.69 63.34 0.08 0.03 0.11 16.36 75.45 302.58 487.24 1,234.64 a) Intrinsic value : Beginning S & P Index price : 2,050.00 b) Estimated rate of return under the 3 situations is :Pessimistic Estimated rate of return : Consensus -85.24% S & P Index is overweight in the global portolio. -76.23% Optimistic -39.77% Beginning FCFE : k: 80.00 9.00% 1% increase in rate of inflation will increase k to :k= 10.09% Calculation of market value : Year FCF 1 2 3 4 5 6 7 Market value 87.20 95.05 103.60 111.89 120.84 130.51 4,519.25 PV factor @ 10.09% PV of FCF 0.9083477155 79.21 0.8250955723 78.42 0.7494736781 77.65 0.6807827034 76.17 0.6183874134 74.73 0.5617107942 73.31 0.5102287167 2,305.85 2,765.34 In this example of the U.S. market the index is underweighted Problem 4 Evaluate your industry in terms of the five factors that determine an industry's intensity of competition. Based on this analysis, what are your expectations about the industry's profitability in the short run (1 or 2 years) and the long run (5 to 10 years)? Porter identified five factors that act together to determine the nature of competition within an industry. These are the: Threat of new entrants to a market Bargaining power of suppliers Bargaining power of customers (\"buyers\") Threat of substitute products Degree of competitive rivalry Using Standard and Poor's Analysts' Handbook or another source, plot the latest 10-year history of the operating profit margin for the S&P Industrials Index, or another aggregate market series versus and industry of your choice. Is there positive, negative, or zero correlation? story of the operating ndustry of your Prepare a table listing the variables that influence theearnings multiplier for your chosen industry and the market index series for the most recent 10 years. A. Do the avaerage dividend payout-payout ratios for your industy and the market index differ? How should the dividend payout influence the difference between the multipliers? B. Based on the fundamental factors would you expect the risk for this industry to differ from that for the market? In what direction, and why?Calculate the industry beta using monthly data for five years. Based on the fundamental factors and the computed systematic risk, how does this industry's risk compare to the market? What effect will the difference in risk have on the industry's multiplier relative to the market multiplier? C. Analyze and discuss the different components of growth (retention rate, total asset turnover, total assets/equity, and profit margin)for your chosen industry and a market index during the past 10 years. Based on this analysis, how would you expect the growth rate for your industry to compare with the growth rate for the market index? How wou this diffrence in expected growth affect the multiplier? Variable Date Impact on P/E Market Index Values (Past 10 years) Open High Low Close/Last Volume Key Growth Components Retention Rate Total Asset Turnover Total Assets Equity Profit Margin The industrial organization that I have chosen for analysis is Apple, it is an Americanbased company that designs consumer-electronics. Porter's five factors, studies the the forces that derive the competiveness of a certain market, shall be used to evaluate the competitive intensity of Apple, Inc. Porter's five factor model has the following basic constituents: 1. Threat of substitutes 2. Threat of industrial rivalry 3. Threat of new entrants 4. Bargaining power of customers 5. Bargaining power of Suppliers (Porter, 2008). 6. Currently, the products being supplied by Apple are facing high competiveness from other substitutes. Various alternative choices of products are now available to consumer market that is creating more competition for the Apple Company. Entertainment alternatives such as XBOX, CD's, Sony mp3's and DVD's are becoming a threat to Apple products such as iPods. Similarly, the Samsung and Nokia smart phones are struggling to gain competitive advantage over Apple's iPhone (Dediu, 2013). However, Apple has adopted the strategy of offering quality products that provide uniquely satisfying experience to the customers thereby remaining at the top of the market. Furthermore, its new operating system OSX and iOS have also contributed a lot to its success against the threat of substitutes. 7. Apple is facing a huge threat from industrial rivalry. Apple's two major product bases are personal computers and portable music players. Companies and Industries like HP, Dell, Toshiba and Sony are all a major threat that continuously makes an effort to gain more percentage of the market share. Furthermore, Apple smart phones are in tough competition with the Samsung and Nokia products. However, Apple has sustained its market position significantly by adding new improvement features and quality of the products that they offer. 8. In the case of Apple, the major threat of new entrants comes only from the product base of the portable music players. The threat of new entrants from computer electronic industry are relatively low owing to the fact that the market requires too much investment for startup to compete with companies like Lenovo, HP, Dell and Sony. Google is currently working on developing an iplayer that is similar in function with iPod, which is currently a major threat. 9. Apple products have low bargaining powers of customer owing to the fact of their popularity. Apple products still remain at the top of the market mainly due to their sudden fame. 10. Apple has limited bargaining powers from the suppliers as well. It has maintained an independent image in the marketplace by offering quality products that are flexible in price yet fixed in quality. Apple has not yet collaborated with any other company and therefore does not have any other contracts. This has allowed Apple to remain competitive in the marketplace by not having to share (Dediu, 2013). I believe Apple will remain profitable both short-term and long-term. With the release of the new iPhone 6 in September with further increase the hype leading to more competitive advantage. 11. Using Standard and Poor's Analysts' Handbook or another source, plot the latest 10-year history of the operating profit margin for the S&P Industrials Index, or another aggregate market series versus and industry of your choice. Is there positive, negative, or zero correlation? The net profit margin Apple has been on the rise in the recent years. Furthermore, comparing it to that of the Samsung has provided the similar results. The two competitive companies have maintained a rising profit margin the past 10 years. Since, the net profit margin of both the industries is on the rise, there results a positive correlation between the two. The net profit margin of the two industries is likely to remain high in the coming years as well suggesting that a positive correlation will continue in the near future. 12. Prepare a table listing the variables that influence the earnings multiplier for your chosen industry and the market index series for the most recent 10 years. The following table represents the various variables that influence the earnings multiplier/ Price Earning (P/E) ratios: Variable Stock Price Impact on P/E Stock prices are used to calculate the Price earnings ratios and therefore a fluctuation in the stock price directly impacts the P/E. An Earnings increase in stock prices will cause an increase in earnings multiplier. Earnings per share are another variable that impacts the earnings multiplier