Questions and Answers of Finance For Executives Managing

Assume a stock is priced at $100; calculate its intrinsic value based on the Gordon growth DDM, with the following assumptions: D0 = $3, g = 6 percent, and k = 10 percent. Indicate whether investors
Compare and contrast depositary receipts and cross-listed stocks.
Discuss the benefits and drawbacks for investors in tracking stocks.
Explain the three types of dual-listed company structures.
Identify what motivates companies to offer dual-class equity structures.
Explain at least two ways to classify financial markets.
Discuss why the equity market is important to the economy.
Define and differentiate between at least two of the equity market indices used as market indicators.
Explain the difference between liquidity and marketability for a financial market.
Define financial market efficiency.
Define and differentiate among the weak form, semi-strong form, and strong form levels of market efficiency.
Explain the nature and function of trading rules on stock exchanges.
Differentiate between trading rules and surveillance.
Identify the criticisms and benefits of securities regulation.
Discuss how trading rules differ across countries.
Discuss how trading rules and surveillance affect firm outcomes such as M&As and innovation.
Discuss three conditions needed for market inefficiency and whether bounded rationality may address these conditions.
List three different effects that relate to PT and how each effect can cause investors to make irrational decisions.
List three violations of the weak form EMH and explain how they differ.
List three announcement-related violations of the semi-strong form EMH and explain how they differ.
Explain the difference between forecasting based on technical analysis and fundamental analysis.
Discuss whether security analysts typically use information in financial statements in making their forecasts.
Discuss how analysts can use financial statements to improve their forecasts.
Discuss the limitations of using financial statements for purposes of forecasting and how forecasters can overcome such limitations.
Discuss whether technical and fundamental analysis can be combined to achieve superior forecasting.
Describe the major categories of equity valuation models and discuss the pros and cons of each.
Explain the rationale for using price multiples to value equity, how the P/E and P/B multiples relate to fundamentals, and using multiples based on comparable firms.
Explain why FCFF is discounted at the WACC.
Explain the main limitation of the P/E ratio.
Describe the three steps linking business activities to equity prices.
Discuss why the analysis of a company’s accounting policies is an important part of company analysis.
Explain how risk, economic rents, and accounting distortions affect ROA.
Discuss how ROA relates to ROE.
Discuss the philosophical link between technical and fundamental investment strategies.
Explain the importance of properly defining the market’s primary trend as a first step toward building a portfolio.
Identify the three phases that both primary bull and bear markets undergo and explain how changing economic and fundamental trends and investors’ behaviorally biased perceptions of them are driving
Discuss the similarities and differences between trend following and crosssectional momentum strategies.
Discuss the advantages and limitations of the Gordon model.
Explain the life-cycle stages followed by firms constituting the basis of multistage DDMs.
Identify in which company types the classical two-stage DDM is likely to work best to estimate common stock value.
Explain the basic features of stochastic DDMs and compare them to traditional constant growth and multistage models.
Discuss the uses of DDMs.
Articulate the advantages and disadvantages of FCF valuation analysis relative to DDM analysis.
Define what is meant by FCFF and FCFE.
Explain why growth patterns are important in modeling FCFs.
Discuss the choice of FCF method that would be most suitable for the valuation of: (1) a venture capital investment, (2) a mature manufacturing firm, (3) an acquisition through an LBO, and (4) a
Summarize the alternative uses of a DCF model besides valuing a company.
Give several examples of widely used valuation multiples and discuss how to estimate the target’s value using these multiples.
Identify the main factors proposed in academic research to determine the values of different multiples.
Discuss the major advantages and disadvantages of using the multiple valuation method.
Discuss the main reasons that researchers and practitioners use forecasted values rather than historical values for the value drivers.
Discuss using the harmonic mean as a normalizing method for different multiples drawn from different comparable firms.
Define RI and discuss how to measure it.
Discuss the types of adjustments to reported financial statement numbers needed when calculating RI, and why such adjustments are needed.
Discuss how RI is applied to equity valuation.
Explain the advantages of RI valuation over traditional approaches such as the DDM.
Explain the disadvantages of RI valuation compared with traditional approaches such as the DDM.
Discuss some limitations of DCF valuation methods and the comparable firm valuation method in private company valuation.
Discuss the justifications for using high target rates of returns (discount rates) in the VC valuation method.
Discuss the accuracy of calculating the post-money valuation in the VC method as an estimate of the implied enterprise value of a private company.
Identify the role of capital structure in private company valuation.
Explain how technical analysis and fundamental analysis differ.
Describe how to assess a stock’s intrinsic value.
Identify some key characteristics of growth stocks.
Discuss the basics of income investing using equities.
Describe the trend in ESG investing.
Define the term factor.
Identify and discuss the four most prominent factors in academic literature.
Identify and discuss two distinct arguments for why factor performance is robust over time.
Discuss why combining multiple factors into a portfolio can be beneficial to investors.
Discuss how and why an investor could use factors to benchmark fundamental active managers.
Distinguish between factor investing and smart beta.
Differentiate between smart beta and alpha-seeking strategies.
Explain the performance of smart beta strategies between 1967 and 2010 and between 2009 and 2018.
Discuss whether the various investment strategies experience similar levels of volatility between 2009 and 2018.
Discuss the effectiveness of activist investing and identify its limitations.
Describe the different hedge fund activist approaches.
Describe the key differences between individual and institutional activists.
Compare and contrast the differences among SRI, ESG, and impact investing approaches and the asset classes that they are more likely to be found.
Discuss the challenges in measuring impact, ESG, and the tools that are currently being used.
Discuss why the lack of standardized guidelines regarding voluntary nonfinancial disclosure (ESG metrics) is such a critical problem for integrating ESG metrics into equity valuation.
Discuss the findings from academic research about the traditional SRI practice of negative screening.
To account for Apple’s supply chain problems, discusswhether an analyst should consider adjusting the company’s cost of capital upward to reflect the negative events associated with the global
Discuss how investors should consider the new types of risk that may affect brand value from negative events such as what Apple experienced with its supplier.
Discuss the tax efficiency of ETFs relative to MFs.
Discuss the relative transparency of ETFs into the underlying assets and benefits to investors.
Discuss three benefits of ETFs.
Contrast the share creation processes of MFs and ETFs.
Describe the important differences between MFs and CEFs.
Define PE and list its different types.
Define commitment period, capital call, seed money, and bridge financing.
Discuss the different types of risks involved with PE investments.
List the main factors that PE investors should consider before investing.
Discuss an investor’s motivation to invest in VC versus a buyout and an issuer’s motivation for PE financing over other sources of financing.
Define different measures of PE returns and discuss why they differ from conventional public market metrics.
Identify the factors affecting the capital flow to emerging markets.
Discuss how global investors can still benefit from investing in emerging markets given that these markets are becoming more integrated with developed markets.
Discuss some effective institutional strategies for making better investments in emerging markets.
Discuss whether political connections matter in investment decisions and performance in emerging markets.
Discuss the pros and cons of various disclosure regulation approaches: voluntary, mandatory, and comply or explain options.

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