National Association of Investment Corporations Technique of Stock Selection

Assume the statements are true and answer each question.

The latest annual sales growth rate was = 16%.

The latest quarter of earnings per share growth rate was = 17%.

The latest pre-tax profit margin was = 5%. (The previous 5 year average was 4.34%)

The latest return on equity(book) was = 15%. (The previous 5 year average was = 12%.)

Currently, would you think this is a good company? You need to answer this question by giving reasons as to why or why not then continue with the assumptions.

Average high p/e over the previous 5 years = 22.

Average low p/e over the previous 5 years = 14.

The latest Earnings per share were $6.00 and the dividend payout ratio (d/e) is expected to remain at 33.33%.

Assume you just purchased the stock for $100.00.

What would have been your approximate anticipated annualized rate of return if your assumptions came true and you sold the stock at the end of the next 5 years at a p/e = 20?