Q#1 (Chapters 7 and 12). You recently learned in FIN 602 how to value stocks using the P/E multiples approach, constant dividend growth model, and corporate valuation model. On February4, 2019, you tuned into CNBC financial TV channel and watched different financial analysts discussing the current valuations of Amazon, Apple, Google,Goldman Sachs, and the overall U.S. andEuropean stock markets.However, you are puzzled because these analysts could not agree on the current valuations and end-of-year price targets for the four companies and overall stock market. For example, two analysts argued that Amazonand Goldman Sachs (an investment bank)are currently overvalued, while others reached the opposite conclusion. Their end-of-the-year stock price targets for the four stocks and overall market also varied widely.Please solve this puzzle and explain how these analysts (and stock analysts in general) can reach such very different conclusions on stock valuations and price targets. You can assume that all analysts are using the same three stock valuation approaches of chapters 7 and 12.

Q#2 (Chapter 9).A diversified company has decided to use its overall firm WACC as a performance benchmark for rating its divisional managers and to decide whether new projects from its three divisions should be funded for investment capital. The firm WACC is 12%. The divisional WACCs for its high risk, average risk, and low risk divisions are 16%, 11.9%, and 8%, respectively. Please explain the pros and cons of using the firm WACC in evaluating its divisional managers and projects.Remember that WACC can be interpreted as a hurdle rate or the minimum acceptable return.

Q#3(Chapters 6 & 7). Finance research has shown that managers of actively managed mutual funds or exchange traded funds (ETF), on average, do notoutperform the overall stock market as measured by the S&P 500 index (see chapter 7 PP slides and your book). In the long-run, nearly 80% of fund managers were unable to beat the overall stock market return. The year 2013 is a good example when the S&P 500 yielded nearly 29% return, which was better than the average return on 95% of actively managed stock portfolios with similar risk. (a) If you believe these results which seem to support informational efficiency of equity markets in U.S., what would be your investment strategy so that youraveragelong-runreturns are better than the returnsrealized by more than two-third (75%) of professional money managers of actively traded funds. Explain. (b) If equity markets are informationally efficient and rational to alarger extent, how would you explainthe stock market bubble of 2008 in the presence of efficient markets.