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 Rip Curl Four Administration Function Article Essays and Term Papers

LA TROBE UNIVERSITY

TERM ONE EXAMINATION PERIOD

2011

FIN5EQS

EQUITY SECURITIES

SAMPLE EXAM INQUIRIES

SAMPLE SECTION A (Multiple Choice) CONCERNS

The following info relates to Inquiries 1 – 6.

Jacob Daniel is a chief investment officer in a U. S. monthly pension fund sponsor, and Steven Rae is usually an analyst for the pension finance who employs consumer/non-cyclical stocks and shares. At the beginning of this year's, Daniel requests Rae to value the equity of Tasty Food Company because of its possible introduction in the list of approved opportunities. Tasty Foods Company is involved in the production of freezing foods which can be sold below its own brand to stores. Rae is considering if a dividend price cut mode can be appropriate for valuing Tasty Foods. He features complied the info in the subsequent table pertaining to the company's EPS and DPS during the last five years. The quarterly dividends paid by company have been completely added to reach the twelve-monthly dividends. Rae has also computed the dividend payout proportion for each yr as DPS/EPS and the expansion rates in EPS and DPS.

Yr

EPS ($)

DPS ($)

Payout Percentage

2008

2007

2006

2005

2004

2 . 12

2 . 06

installment payments on your 01

1 . 89

1 ) 78

zero. 59

zero. 57

zero. 54

zero. 51

0. 48

0. 278

zero. 277

zero. 269

zero. 270

0. 270

Expansion in

EPS (%)

installment payments on your 9

2 . 5

six. 3

6th. 2

Expansion in

DPS (%)

several. 5

five. 6

5. 9

six. 3

Rae notes which the EPS in the company have been increasing in a average price of four. 48% annually. The gross payout percentage has remained fairly stable and dividends have got increased in an average charge of your five. 3%. Taking into consideration a history of dividend obligations by the business and the understandable relationship dividend policy bears to the company's earnings, Rae concludes the fact that DDM is suitable to worth the equity of Tasty Foods. Even more, he wants the average growth rate of the company to continue and chooses to use the Gordon development model. Rae uses the CAPM to compute the return in equity. He uses the annual deliver of 4% on the 10-year Treasury connection as the risk-free returning. He estimations the expected U. S. equity risk premium, with all the S& P 500 Index used as a proxy to get the market, to be 6. 5% per year. The estimated beta of Delightful foods resistant to the S%P five-hundred Index can be 1 . 12. Accordingly, Rae's

EQUITY SECURITIES

SAMPLE EXAM

estimate to get the required go back on value for Delicious Foods, is definitely 0. four + 1 ) 10(0. 065) = zero. 1115 or perhaps 11. 15%.

Using the earlier growth price in returns of 5. 3% since his approximate of the future expansion rate in dividends, Rae computes the value of Tasty Foods stock. This individual shows his analysis to Alex Renteria, his friend at the pension check fund who have specialises inside the frozen foods industry. Renteria concurs with the valuation way used by Rae but disagrees with the long term growth charge he utilized. Renteria is convinced that the stock's current value of $8. 42 is a fair worth of the share.

1 .

Which will of the next is closest to Rae's estimate with the stock's benefit? A. $12. 08

B. $10. 54

C. $12. 62

2 .

What is the stock's justified P/E depending on the stock's value predicted by Rae? A. five. 01

N. 5. twenty-four

C. 5. 27

several.

Rae considers a security trading with a band of ±10% of his calculate of inbuilt value to be in his campany a " fair value range”. Simply by that requirements, the stock of Tasty Foods is: A. undervalued

B. quite valued

C. overvalued

4.

The beta of Tasty Foods share of 1. 15 used by Rae in calculating the required come back on collateral was based on monthly results for the last ten years. If Rae uses daily returns for the last 5 years, the beta estimate is usually 1 . 25. If a beta of 1. twenty-five is used, what would be Rae's estimate with the value with the stock of Tasty Foods? A. $8. 64

W. $9. 10

C. 20 dollars. 13

your five.

Alex Renteria has suggested that the market price of Delightful Foods share is their fair value. What is the implied progress rate of dividends given the stock's market price? Make use of the required return on collateral base don a beta of 1. 10.

A. several. 87%

N. 5. 30%

C. 12. 1%

6.

If Alex Renteria is proper that the current price of Tasty Food...