Questions and Answers of Equity Asset Valuation

A supply - side estimate of the equity risk premium as presented by the Ibbotson - Chen earnings model is closest toA. 3.2 percent.B. 4.0 percent.C. 4.3 percent.An equity index is established in 2001
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
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
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
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
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
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
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,
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
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.
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
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
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
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
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
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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