CFA一级Equity部分-Reading38课后习题及答案

CFA一级Equity部分・Reading38课后习题及答案

Reading38EquityValuation:ConceptsandBasicTools

1

Ananalystestimatestheintrinsicvalueofastocktobeintherangeof€17.85to€21.45.Thecurrent

marketpriceofthestockis€24.35.Thisstockismostlikely:

Aovervalued.

Bundervalued.

Cfairlyvalued.

SOLUTIONS:

1Aiscorrect.Thecurrentmarketpriceofthestockexceedstheupperboundoftheanalyst'sestimateof

theintrinsicvalueofthestock.

2

Ananalystdeterminestheintrinsicvalueofanequitysecuritytobeequalto$55.Ifthecurrentpriceis$47,

theequityismostlikely:

Aundervalued.

Bfairlyvalued.

Covervalued.

SOLUTIONS:

2Aiscorrect.Themarketpriceislessthantheestimatedintrinsic,orfundamental,value.

3

Inasset-basedvaluationmodels,theintrinsicvalueofacommonshareofstockisbasedonthe:

Aestimatedmarketvalueofthecompany'sassets.

Bestimatedmarketvalueofthecompany'sassetsplusliabilities.

Cestimatedmarketvalueofthecompany/sassetsminusliabilities.

SOLUTIONS:

3Ciscorrect.Asset-basedvaluationmodelscalculatetheintrinsicvalueofequitybysubtractingliabilities

fromthemarketvalueofassets.

-----------------笔记-----------------

FromEquity-Reading38-P365

Asset-basedvaluationmodels.Thesemodelsestimateintrinsicvalueofacommonsharefromthe

estimatedvalueoftheassetsofacorporationminustheestimatedvalueofitsliabilitiesandpreferred

shares.Theestimatedmart?]ketvalueoftheassetsisoftendeterminedbymakingadjustmentstothebook

value(synonym:carryingvalue)ofassetsandliabilities.

4

Whichofthefollowingismostlikelyusedinapresentvaluemodel?

AEnterprisevalue.

BPricetofreecashflow.

CFreecashflowtoequity.

SOLUTIONS:

4Ciscorrect.FCFEcanbeusedinaformofpresentvalue,ordiscountedcashflow,model.BothEVand

pricetofreecashflowareformsofmultipliermodels.

-----------------笔记-----------------

FromEquity-Reading38-P365

>Presentvaluemodels(synonym:discountedcashflowmodels).Thesemodelsestimatetheintrinsic

valueofasecurityasthepresentvalueofthefuturebenefitsexpectedtobereceivedfromthesecurity.

Inpresentvaluemodels,benefitsareoftendefinedintermsofcashexpectedtobedistributedto

shareholders(pividenddiscotntmodelf)orintermsofcashflowsavailabletobedistributedto

shareholdersaftermeetingcapitalexpenditureandworkingcapitalneeds(free-cash-flow-to-equity

modelj).Manymodelsfallwithinthiscategory,rangingfromtherelativelysimpletotheverycomplex.

InSections4-8,wediscussindetailtwoofthesimplermodels,theGordon(constant)growthmodel

andthetwo-stagedividenddiscountmodels.

Multipliermodels(synonym:marketmultiplemodels).Thesemodelsarebasedchieflyonshareprice

multiplesorenterprisevaluemultiples.

■Theformermodelestimatesintrinsicvalueofacommonsharefromapricemultipleforsome

fundamentalvariable,suchasrevenues,earnings,cashflows,orbookvalue.Examplesofthe

multiplesincludepricetoearnings(P/E,sharepricedividedbyearningspershare)andpriceto

sales(P/S,sharepricedividedbysalespershare).Thefundamentalvariablemaybestatedona

forwardbasis(e.g.zforecastedEPSforthenextyear)oratrailingbasis(e.g.,EPSforthepastyear),

aslongastheusageisconsistentacrosscompaniesbeingexamined.Pricemultiplesarealsoused

tocomparerelativevalues.TheuseoftheratioofsharepricetoEPS一thatis,theP/Emultiple-to

judgerelativevalueisanexampleofthisapproachtoequityvaluation.

Enterprisevalue(EV)multipleshavetheform(Enterprisevalue)/(Valueofafundamental

variable).Twopossiblechoicesforthedenominatorareearningsbeforeinterest,taxes,

depreciation,andamortization(EBITDA)andtotalrevenue.Enterprisevalue,thenumerator,isa

measureofacompany'stotalmarketvaluefromwhichcashandshort-terminvestmentshave

beensubtracted(becauseanacquirercouldusethoseassetstopavforacquiringthecompany).An

estimateofcommonsharevaluecanbecalculatedindirectlyfromtheEVmultiple;thevalueof

liabilitiesandpreferredsharescanbesubtractedfromtheEVtoarriveatthevalueofcommon

equitv.

Bookvalueisleastlikelytobeconsideredwhenusing:

Aamultipliermodel.

Banasset-basedvaluationmodel.

Capresentvaluemodel.

SOLUTIONS:

5Ciscorrect.Multipliervaluationmodels(intheformofP/E)andasset-basedvaluationmodels(inthe

formofadjustmentstobookvalue]usebookvalue,whereaspresentvaluemodelstypicallydiscountfuture

expectedcashflows.

6

Ananalystisattemptingtocalculatetheintrinsicvalueofacompanyandhasgatheredthefollowing

companydata:EBITDA,totalmarketvalue,andmarketvalueofcashandshort-terminvestments,liabilities.

-----------------笔记-----------------

FromEquity-Reading38-P371

Inpractice,manyanalystsprefertouseafree-cash-flow-to-equity(FCFE)valuationmodel.Theseanalysts

assumethatdividend-payingcapacityshouldbereflectedinthecashflowestimatesratherthanexpected

dividends.FCFEisameasureofdividendpayinHcapacity.AnalystsmayalsouseFCFEvaluationmodelsfora

rior-dividerdpayiriRstock.

ThecaculationofFCFEstartswiththecalculationofcashflowfromoperations(CFO).CFOissimplydefined

asnetincomeplusnon-cashexpensesminusinvestmentirworkingcapital.FCFEisameasureofcashflow

generatedinaperiodthatisavailablefordistributiontocommonshareholders.Whatdoesuavailablefor

distributionMmean?TheentireCFOisnotavailablefordistribution;theportionoftheCFOneededfor

fixedcapitalinvestment(FCInv)duringtheperiodtomaintainthevalueofthecompanyasagoingconcern

isnotviewedasavailablefordistributiontocommonshareholders.Netamountsborrowed(borrowings

minusrepayments)areconsideredtobeavailablefordistributiontocommonshareholders.Thus,FCFEcan

beexpressedas

FCFE=CFO-FCInv+Netborrowing

TheinformationneededtocalculatehistoricalFCFEisavailablefromacompany?sstatementofcash

flowsandfinancialdisclosures.Frequently,undertheassumptionthatmanagementisactingintheinterest

ofmaintainingthevalueofthecompanyasagoingconcern,reportedcapitalexpenditureistakento

representFCInv.AnalystsmustmakeprojectionsoffinancialstoforecastfutureFCFE.Valuationobtainedby

usingFCFEinvolvesdiscountingexpectedfutureFCFEbytherequiredrateofreturnonequity;the

expressionparallelsEquation1:

00

%=zFCFE,

/=10+1

8

Aninvestorexpectstopurchasesharesofcommonstocktodayandsellthemaftertwoyears.Theinvestor

hasestimateddividendsforthenexttwoyears,DIandD2,andthesellingpriceofthestocktwoyearsfrom

now,P2.Accordingtothedividenddiscountmodel,theintrinsicvalueofthestocktodayisthepresent

valueof:

Anextyearzsdividend,DI.

Bfutureexpecteddividends,DIandD2.

Cfutureexpecteddividendsandprice—DI,D2andP2.

SOLUTIONS:

8Ciscorrect.Accordingtothedividenddiscountmodel,theintrinsicvalueofastocktodayisthepresent

valueofallfuturedividends.Inthiscase,theintrinsicvalueisthepresentvalueofDI,D2,andP2.Note

thatP2isthepresentvalueatPeriod2ofallfuturedividendsfromPeriod3toinfinity.

9

Inthefreecashflowtoequity(FCFE)model,theintrinsicvalueofashareofstockiscalculatedas:

AthepresentvalueoffutureexpectedFCFE.

BthepresentvalueoffutureexpectedFCFEplusnetborrowing.

CthepresentvalueoffutureexpectedFCFEminusfixedcapitalinvestment.

SOLUTIONS:

9Aiscorrect.IntheFCFEmodel,theintrinsicvalueofstockiscalculatedbydiscountingexpectedfuture

FCFEtopresentvalue.Nofurtheradjustmentsarerequired.

10

Withrespecttopresentvaluemodels,whichofthefollowingstatementsismostaccurate?

APresentvaluemodelscanbeusedonlyifastockpaysadividend.

BPresentvaluemodelscanbeusedonlyifastockpaysadividendorisexpectedtopayadividend.

CPresentvaluemodelscanbeusedforstocksthatcurrentlypayadividend,areexpectedtopayadividend,

orarenotexpectedtopayadividend.

SOLUTIONS:

10Ciscorrect.Dividenddiscountmodelscanbeusedforastockthatpaysacurrentdividendorastock

thatisexpectedtopayadividend.FCFEcanbeusedforbothofthosestocksandforstocksthatdonot,or

arenotexpectedto,paydividendsinthenearfuture.Bothofthesemodelsareformsofpresentvalue

models.

11

ACanadianlifeinsurancecompanyhasanissueof4.80percent,$25parvalue,perpetual,non-convertible,

non-callablepreferredsharesoutstanding.Therequiredrateofreturnonsimilarissuesis4.49percent.The

intrinsicvalueofapreferredshareisclosestto:

A$25.00.

B$26.75.

C$28.50.

SOLUTIONS:

11Biscorrect.Theexpectedannualdividendis4.80%x$25=$1.20.Thevalueofapreferredshareis

$1.20/0.0449=$26.73.

12

Twoanalystsestimatingthevalueofanon-convertible,non-callable,perpetualpreferredstockwitha

constantdividendarriveatdifferentestimatedvalues.Themostlikelyreasonforthedifferenceisthatthe

analystsuseddifferent:

Atimehorizons.

Brequiredratesofreturn.

Cestimateddividendgrowthrates.

SOLUTIONS:

12Biscorrect.Therequiredrateofreturn,r,canvarywidelydependingontheinputsandisnotunique.A

preferredstockwithaconstantdividendwouldnothaveagrowthratetoestimate,andtheinvestor/stime

horizonwouldhavenoeffectonthecalculationofintrinsicvalue.

13

TheBeasleyCorporationhasjustpaidadividendof$1.75pershare.Iftherequiredrateofreturnis12.3

percentperyearanddividendsareexpectedtogrowindefinitelyataconstantrateof9.2percentperyear;

theintrinsicvalueofBeasleyCorporationstockisclosestto:

A$15.54.

B$56.45.

C$61.65.

SOLUTIONS:

13Ciscorrect.PO=Dl/(r-g)=1.75(1.092)/(0.123-0.092)=$61.65.

-----------------笔记-----------------

FromEquity-Reading38-P375

TheGordon(constant)growthmodel(Gordon,1962)isasimpleandwell-recognizedDDM.Themodel

assumesdividendsgrowindefinitelyataconstantrate.

Becauseofitsassumptionofaconstantgrowthrate,theGordongrowthmodelisparticularlyappropriate

forvaluingtheequityofdividend-payingcompaniesthatarerelativelyinsensitivetothebusinesscycleand

inamaturegrowthphase.

上《仇Ji，)/

Kn=)*-----：­=%3----r+------r+...+----------

t=\(1+r)(1+1)(1+r)(1+广广

Ifrequiredreturnrisassumedtobestrictlygreaterthangrowthrateg,thenthesquare-bracketedtermin

Equation8isaninfinitegeometricseriesandsumsto[(1+g)/(r-g)].SubstitutingintoEquation8produces

theGordongrowthmodelaspresentedinEquation.

%-o(l+g)=I

f-gf-S

TheGordongrowthmodelestimatesintrinsicvalueasthepresentvalueofagrowingperpetuity.Ifthe

growthrate,g,isassumedtobezero,Equation8reducestotheexpressionforthepresentvalueofa

perpetuity.

Inestimatingalong-termgrowthrate,analystsuseavarietyofmethods,includingassessingthegrowthin

dividendsorearningsovertime,usingtheindustrymediangrowthrate,andusingtherelationshipshown

inEqudlion10LueslirridlethesusEIdinablegrowthrale:

g=bxROE(10)

where

g=dividendgrowthrate

b=earningsretentionrate=(1-Dividendpayoutratio)

ROE=returnonequity

TheGordongrowthmodelestimateofintrinsicvalueisextremelysensitivetothechoiceofrequiredrateof

returnrandgrowthrateg.Notethatnovalueisshownwhenthegrowthrateexceedstherequiredrate

ofreturn.TheGordongrowthmodelassumesthatthegrowthratecannotbegreaterthantherequiredrate

ofreturn.

TheassumptionsoftheGordonmodelareasfollows:

/Dividendsarethecorrectmetrictouseforvaluationpurposes.

/Thedividendgrowthrateisforever:Itisperpetualandneverchanges.

/Therequiredrateofreturnisalsoconstantovertime.

/Thedividendgrowthrateisstrictlylessthantherequiredrateofreturn.

ApplyingaDDMisdifficultifthecompanybeinganalyzedisnotcurrentlypayingadividend.

14

Aninvestorisconsideringthepurchaseofacommonstockwitha$2.00annualdividend.Thedividendis

expectedtogrowatarateof4percentannually.Iftheinvestor'srequiredrateofreturnis7percent,the

intrinsicVAIUPofthestockisclosesttn:

A$50.00.

B$66.67.

C$69.33.

SOLUTIONS:

14Ciscorrect.AccordingtotheGordongrowthmodel,V0=Dl/(r-g).Inthiscase,DI=$2.00x1.04=

$2.08,soV0=$2.0%(0.07-0.04)=$69.3333=$6933.

15

Ananalystgathersorestimatesthefollowinginformationaboutastock:

Currentpricepershare€22.56

Currentannualdividendpershare€1.60

AnnualdividendgrowthrateforYears1-49.00%

AnnualdividendgrowthrateforYears5+4.00%

Requiredrateofreturn12%

Basedonadividenddiscountmodel,thestockismostlikely:

Aundervalued.

Bfairlyvalued.

Covervalued.

SOLUTIONS:

15Aiscorrect.Thecurrentpriceof€22.56islessthantheintrinsicvalue(VO)of€24.64;therefore,the

stockappearstobecurrentlyundervalued.Accordingtothetwo-stagedividenddiscountmodel:

=甘业&L_^and—

・

占(l+r/(1+rfgL

Dj=€1.60x1.09=€1.744

2

D2=€1.60x(1.09)=€1.901

。3=€1.60x(1.09)3=€2.072

4

D4=€1.60x(1.09)=€2.259

4

D5=[€1.60x(1.09)](1.04)=€2.349

V4=€2.349/(0.12-0.04)=€29.363

、

r1.7441.9012.0722.25929.363

(1.12)1(1.12)2(1.12)3(1.12)4(1.12)4

=1.557+1.515+1.475+1.436+18.661

=€24.64(whichisgreaterthanthecurrentpriceof€22.56)

-----------------笔记-----------------

FromEquity-Reading38-P380

Multistagegrowthmodelsareoftenusedtomodelrapidlygrowingcompanies.Thetwo-stageDDM

assumesthatatsomepointthecompanywillbegintopaydividendsthatgrowataconstantrate,butprior

tothattimethecompanywillpaydividendsthataregrowingatahigherratethancanbesustainedinthe

longrun.Thatis,thecompanyisassumedtoexperienceaninitial,finiteperiodofhighgrowth,perhaps

priortotheentryofcompetitors,followedbyaninfiniteperiodofsustainablegrowth.

Thetwo-stageDDMthusmakesuseoftwogrowthrates:ahighgrowthrateforaninitial,finiteperiod

followedbyalower,sustainablegrowthrateintoperpetuity.TheGordongrowthmodelisusedtoestimate

aterminalvalueattimenthatreflectsthepresentvalueattimenofthedividendsreceivedduringthe

sustainablegrowthperiod.

Equation11willbeusedhereasthestartingpointforatwo-stagevaluationmodel.Thetwo-stage

valuationmodelissimilartoExample8exceptthatinsteadofassumingzerodividendsfortheinitialperiod,

theanalystassumesthatdividendswillexhibitahighrateofgrowthduringtheinitialperiod.Equation11

valuesthedividendsovertheshort-termperiodofhighgrowthandtheterminalvalueattheendofthe

periodofhighgrowth.Theshort-termgrowthrate,gS,lastsfornyears.Theintrinsicvaluepershareinyear

n,Vn,representstheyearnvalueofthedividendsreceivedduringthesustainablegrowthperiodorthe

terminalvalueattimen.VncanbeestimatedbyusingtheGordongrowthmodelasshowninEquation12,

wheregListhelong-termorsustainablegrowthrate.Thedividendinyearn+1,Dn+1,canbedetermined

byusingEquation13:

及A(l+gs)\匕,

(11)

r=l(1+r)1(1+厂)”

(12)

4+1=A(l+gS『(l+gL)(13)

TheDDMcanbeextendedtoasmanystagesasdeemedappropriate.Formostpubliclytradedcompanies

(thatis,cnmpanipsbpynndthpstart-upstage),practitinnpnassumegrowthwillultimafplyfallintothrpp

stages:1)growth,2)transition,and3)maturity.Thisassumptionsupportstheuseofathree-stageDDM,

whichmakesuseofthreegrowthrates:ahighgrowthrateforaninitialfiniteperiod,followedbyalower

growthrateforafinitesecondperiod,followedbyalower,sustainablegrowthrateintoperpetuity.

Onecanmakethecasethatathree-stageDDMwouldbemostappropriateforafairlyyoungcompany,one

thatisjustenteringthegrowthphase.Thetwo-stageDDMwouldbeappropriatetoestimatethevalueof

anoldercompanythathasalreadymovedthroughitsgrowthphaseandiscurrentlyinthetransitionphase

(aperiodwithahighergrowthratethanthesustainablegrowthrate)priortomovingtothematurityphase

(theperiodwithalower,sustainablegrowthrate).

16

AnanalystisattemptingtovaluesharesoftheDominionCompany.Thecompanyhasjustpaidadividend

of$0.58pershare.Dividendsareexpectedtogrowby20percentnextyearand15percenttheyearafter

that.Fromthethirdyearonward,dividendsareexpectedtogrowat5.6percentperyearindefinitely.Ifthe

requiredrateofreturnis8.3percent,theintrinsicvalueofthestockisclosestto:

A$26.00.

B$27.00.

C$28.00.

SOLUTIONS:

16Ciscorrect.

Q+D2+B

%=

(1+广)(1+r)2(1+r)2

0.700.8031.29

7-------7+----------T+----------7

(1.083)(1.083)(1.083)

=$28.01

NotethatDI=0.58(1.20)=0.70,D2=0.58(1.20)(1.15)=0.80,andP2=D夕(k-g)=0.80(1.056)/(0.083-

0.056)=31.29

17

HidekiCorporationhasjustpaidadividendnf¥450pprsharp.Annualdividendsarepxppctpdtogrowat

therateof4percentperyearoverthenextfouryears.Attheendoffouryears,sharesofHideki

Corporationareexpectedtosellfor¥9000.Iftherequiredrateofreturnis12percent,theintrinsicvalueof

ashareofHidekiCorporationisclosestto:

A¥5,850.

B¥7,220.

C¥7,670.

SOLUTIONS:

17Biscorrect.

=Q+4+++,

(1+4(1+z-)2(1+r)3(1+r)4(1+r)4

468486.72506.19526.449000

=-------+--------+--------+--------+--------

(L12)(1.12)2(1.12)3(1.12)4(1.12)4

=¥7,220

18

TheGordongrowthmodelcanbeusedtovaluedividend-payingcompaniesthatare:

Aexpectedtogrowveryfast.

Binamaturephaseofgrowth.

Cverysensitivetothebusinesscycle.

SOLUTIONS:

18Biscorrect.TheGordongrowthmodel(alsoknownastheconstantgrowthmodel)canbeusedtovalue

dividend-payingcompaniesinamaturephaseofgrowth.Astabledividendgrowthrateisoftenaplausible

assumptionforsuchcompanies.

19

Thebestmodeltousewhenvaluingayoungdividend-payingcompanythatisjustenteringthegrowth

phaseismostlikelythe:

AGordongrowthmodel.

Btwo-stagedividenddiscountmodel.

Cthree-stagedividenddiscountmodel.

SOLUTIONS:

19Ciscorrect.TheGordongrowthmodelisbestsuitedtovaluingmaturecompanies.Thetwo-stagemodel

isbestforcompaniesthataretransitioningfromagrowthstagetoamaturestage.Thethree-stagemodelis

appropriateforyoungcompaniesjustenteringthegrowthphase.

20

AnequityanalysthasbeenaskedtoestimatetheintrinsicvalueofthecommonstockofOmega

Corporation,aleadingmanufacturerofautomobileseats.Omegaisinamatureindustry,andbothits

earningsanddividendsareexpectedtogrowatarateof3percentannually.Whichofthefollowingismost

likelyI。bethebestmodelfordeterminingIheintrinsicvalueofanOmegashare?

AGordongrowthmodel.

BFreecashflowtoequitymodel.

CMultistagedividenddiscountmodel.

SOLUTIONS:

20Aiscorrect.Thecompanyisamaturecompanywithasteadilygrowingdividendrate.Thetwo-stage(or

multistage)modelisunnecessarybecausethedividendgrowthrateisexpectedtoremainstable.Although

anFCFEmodelcouldbeused,thatmodelismoreoftenchosenforcompaniesthatcurrentlypayno

dividends.

21

ApriceearningsratiothatisderivedfromtheGordongrowthmodelisinverselyrelatedtothe:

Agrowthrate.

Bdividendpayoutratio.

Crequiredrateofreturn.

SOLUTIONS:

21Ciscorrect.ThejustifiedforwardP/Eiscalculatedasfollows:

岛

Eir-g

P/Eisinverselyrelatedtotherequiredrateofreturn,r,anddirectlyrelatedtothegrowthrate,g,andthe

dividendpayoutratio,D/E.

-----------------笔记-----------------

FromEquityRcading38P386

Pricemultiplesarefrequentlyusedindependentlyofpresentvaluemodels.Onepricemultiplevaluation

approcch,themethodofcomparables,doesnotinvolvecashflowforecastsordiscountingtopresentvalue.

Apricemultipleisoftenrelatedtofunda0mentalsthroughadiscountedcashflowmodel.

Theexpressionsthataredevelopedcanbeinterpretedasthejustifiedvalueofamultiple—thatis,the

valuejustifiedby(basedon)fundamentalsorasetofcashflowpredictions.Theseexpressionsarean

dllernalivewayofpresentinginlrinsic-vdlueeslimdles.

Asanexample,usingtheGordongrowthmodelidentifiedpreviouslyinEquation9andassumingthatprice

equalsintrinsicvalue(PO=VO),wecanrestateEquation9asfollows.

pQ

一g

ToarriveatthemodelforthejustifiedforwardP/EgiveninEquation14,wedividebothsidesofEquation

byaforecasttornextyear'searnings,El.InEquation,thedividendpayoutratio,p,istheratiootdividends

toearnings:

.=4/—=P

Eir-gr-g

EquationindicatesthattheP/Eisinverselyrelatedtotherequiredrateofreturnandpositivelyrelatedto

thegrowthrate;thatis,astherequiredrateofreturnincreases,theP/Edeclines,andasthegrowthrate

increases,theP/Eincreases.

22

TheprimarydifferencebetweenP/EmultiplesbasedoncomparablesandP/Emultiplesbasedon

fundamentalsisthatfundamentals-basedP/Estakeintoaccount:

Afutureexpectations.

Bthelawofoneprice.

Chistoricalinformation.

SOLUTIONS:

22Aiscorrect.Multiplesbasedoncomparablesaregroundedinthelawofonepriceandtakeintoaccount

historicalmultiplevalues.Incontrast,P/EmultiplesbasedonfundamentalscanbebasedontheGordon

growthmodel,whichtakesintoaccountfutureexpecteddividends.

-----------------笔记-----------------

FromEquity-Reading38-P389

Themethodofcomparablesisthemostwidelyusedapproachforanalystsreportingvaluationjudgments

onthebasisofpricemultiples.Thismethodessentiallycom团paresrelativevaluesestimatedusing

multipesortherelativevaluesofmultiples.Theeconomicrationaleunderlyingthemethodofcomparables

isthelawofoneprice:Identicalassetsshouldsellforthesameprice.Themethodologyinvolvesusinga

pricemultipletoevaluatewhetheranassetisfairlyvalued,undervalued,orovervaluedinrelationtoa

benchmarkvalueofthemultiple.Choicesforthebenchmarkmultipleincludethemultipleofaclosely

matchedindividualstockortheaverageormedianvalueofthemultipleforthestock'sindustry.Some

analystsperformtrendortime回seriesanalysesandusepastoraveragevaluesofapricemultipleasa

benchmark.

23

Ananalystmakesthefollowingstatement:"UseofP/Eandothermultiplesforanalysisisnoteffective

becausethemultiplesarebasedonhistoricaldataandbecausenotallcompanieshavepositiveaccounting

earnings/Theanalyst'sstatementismostlikely:

Ainaccuratewithrespecttobothhistoricaldataandearnings.

Baccuratewithrespecttohistoricaldataandinaccuratewithrespecttoearnings.

Cinaccuratewithrespecttohistoricaldataandaccuratewithrespecttoearnings.

SOLUTIONS:

23Aiscorrect.Thestatementisinaccurateinbothrespects.Althoughmultiplescanbecalculatedfrom

historicaldata,forecastedvaluescanbeusedaswell.Forcompanieswithoutaccountingearnings,several

othermultiplescanbeused.Thesemultiplesareoftenspecifictoacompany'sindustryorsectorand

includeprice-to-salesandprice-to-cashflow.

24

Ananalysthaspreparedatableoftheaveragetrailingtwelve-monthprice-toearning(P/E),price-to-cash

flow(P/CF),andprice-to-sales(P/S)fortheTanakaCorporationfortheyears2014to2017.

YearP/EP/CFP/S

20144.95.41.2

20156.18.61.5

20168.37.31.9

20179.27.92.3

Asofthedateofthevaluationin2018,thetrailingtwelve-monthP/E,P/CF,andP/Sare,respectively,9.2,

8.0,and2.5.Basedontheinformationprovided,theanalystmayreasonablyconcludethatTanakashares

aremostlikely:

Aovervalued.

Bundervalued.

Cfairlyvalued.

SOLUTIONS:

24Aiscorrect.Tanakasharesaremostlikelyovervalued.Asthetablebelowshows,allthe2018multiples

arecurrentlyabovetheir2014-2017averages.

YearP/EP/CFP/R

20144.95.41.2

20156.18.61.5

20168.37.31.9

20179.27.92.3

Average7.17.31.7

25

AnanalysthasgatheredthefollowinginformationfortheOudinCorporation:

Expectedearningspershare=€5.70

Expecteddividendspershare=€2.70

Dividendsarpexpectedtogrowat?.75pprcpntppryearindefinitely

Therequiredrateofreturnis8.35percent

Basedontheinformationprovided,theprice/earningsmultipleforOudinis

closestto:

A5.7.

B8.5.

C9.4.

SOLUTIONS:

25Biscorrect.

D\2.7

%=El==85

Ex~r-g~0.0835-0.0275-'

26

Ananalystgathersthefollowinginformationabouttwocompanies:

AlphaCorp.DeltaCo.

Currentpricepershare$57.32$18.93

LastyearsEPS$3.82$1.35

Currentyear^estimatedEPS$4.75$1.40

Whichofthefollowingstatementsismostaccurate?

ADeltahasthehighertrailingP/EmultipleandlowercurrentestimatedP/Emultiple.

BAlphahast