Equity Asset Valuation 2nd Edition Jerald E. Pinto, Elaine Henry, Thomas R. Robinson, John D. Stowe, Abby Cohen - Solutions

In the current interest rate environment, using a required return estimate based on the short - term government bond rate and a historical equity risk premium defined in terms of a short - term government bond rate would be expected toA. Bias long - term required return on equity estimates
The events of 2004 to 2006 would be expected toA. Bias the historical equity risk premium estimate upwards.B. Bias the historical equity risk premium estimate downwards.C. Have no effect on the historical equity risk premium estimate.An equity index is established in 2001 for a country that has
The inclusion of index returns prior to 2001 would be expected toA. Bias the historical equity risk premium estimate upwards.B. Bias the historical equity risk premium estimate downwards.C. Have no effect on the historical equity risk premium estimate.An equity index is established in 2001 for a
The following facts describe Larsen & Toubro Ltd.’s component costs of capital and capital structure:Component Costs of CapitalCost of equity based on the CAPM ...................................................15.6%Pretax cost of debt
An analyst wants to account for financial distress and market capitalization as well as market risk in his cost of equity estimate for a particular traded company. Which of the following models is most appropriate for achieving that objective?A. The capital asset pricing model (CAPM)B. The
Newmont Mining (NYSE: NEM) has an estimated beta of – 0.2. The risk - free rate of return is 4.5 percent, and the equity risk premium is estimated to be 7.5 percent. Using the CAPM, calculate the required rate of return for investors in NEM.
The estimated factor sensitivities of TerraNova Energy to Fama - French factors and the risk premia associated with those factors are given in the following table:A. Based on the Fama - French model, calculate the required return for TerraNova Energy using these estimates. Assume that the Treasury
The estimated betas for AOL Time Warner (NYSE: AOL), J.P. Morgan Chase & Company (NYSE: JPM), and The Boeing Company (NYSE: BA) are 2.50, 1.50, and 0.80, respectively. The risk - free rate of return is 4.35 percent and the equity risk premium is 8.04 percent. Calculate the required rates of
A Canada - based investor buys shares of Toronto - Dominion Bank (Toronto: TD.TO) for C $ 72.08 on 15 October 2007, with the intent of holding them for a year. The dividend rate is C $ 2.11 per year. The investor actually sells the shares on 5 November 2007, for C $ 69.52. The investor notes the
You are researching XMI Corporation (XMI). XMI has shown steady earnings - per - share growth (18 percent a year during the past seven years) and trades at a very high multiple to earnings (its P/E is currently 40 percent above the average P/E for a group of the most comparable stocks). XMI has
In a research note on the ordinary shares of the Milan Fashion Group (MFG) dated early July 2007 when a recent price was € 7.73 and projected annual dividends were € 0.05, an analyst stated a target price of € 9.20. The research note did not discuss how the target price was obtained or how it
Discuss how understanding a company’s business (the first step in equity valuation) might be useful in performing a sensitivity analysis related to a valuation of the company.
Based on a study of Intel Corporation that used a present value model (Cornell 2001), examined what future revenue growth rates were consistent with Intel’s stock price of $ 61.50 just prior to its earnings announcement, and $ 43.31 only five days later. The example states, “Using a
Explain how the procedure for using a valuation model to infer market expectations about a company’s future growth differs from using the same model to obtain an independent estimate of value.
A. Explain why liquidation value is generally not relevant to estimating intrinsic value for profitable companies.B. Explain whether making a going - concern assumption would affect the value placed on a company’s inventory.
The text defined intrinsic value as “the value of an asset given a hypothetically complete understanding of the asset’s investment characteristics.” Discuss why “hypothetically” is included in the definition and the practical implication(s).
Critique the statement: “No equity investor needs to understand valuation models because real - time market prices for equities are easy to obtain online.”

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