Q&A Hero

Q: Low Tech Chip Company is expected to have EPS of $2.50 in the coming year. The expected ROE is 14%. An appropriate required return on the stock is 11%. If the firm has a dividend payout ratio of 40%, the intrinsic value of the stock should be A. $22.73. B. $27.50. C. $28.57. D. $38.46.

Q: Sunshine Corporation is expected to pay a dividend of $1.50 in the upcoming year. Dividends are expected to grow at the rate of 6% per year. The risk-free rate of return is 6%, and the expected return on the market portfolio is 14%. The stock of Sunshine Corporation has a beta of 0.75. The intrinsic value of the stock is A. $10.71. B. $15.00. C. $17.75. D. $25.00.

Q: Low Fly Airline is expected to pay a dividend of $7 in the coming year. Dividends are expected to grow at the rate of 15% per year. The risk-free rate of return is 6%, and the expected return on the market portfolio is 14%. The stock of Low Fly Airline has a beta of 3.00. The intrinsic value of the stock is A. $46.67. B. $50.00. C. $56.00. D. $62.50.

Q: Old Quartz Gold Mining Company is expected to pay a dividend of $8 in the coming year. Dividends are expected to decline at the rate of 2% per year. The risk-free rate of return is 6%, and the expected return on the market portfolio is 14%. The stock of Old Quartz Gold Mining Company has a beta of 0.25. The intrinsic value of the stock is A. $80.00. B. $133.33. C. $200.00. D. $400.00.

Q: An analyst has determined that the intrinsic value of IBM stock is $80 per share using the capitalized earnings model. If the typical P/E ratio in the computer industry is 22, then it would be reasonable to assume the expected EPS of IBM in the coming year is A. $3.64. B. $4.44. C. $14.40. D. $22.50.

Q: An analyst has determined that the intrinsic value of Dell stock is $34 per share using the capitalized earnings model. If the typical P/E ratio in the computer industry is 27, then it would be reasonable to assume the expected EPS of Dell in the coming year will be A. $3.63. B. $4.44. C. $14.40. D. $1.26.

Q: An analyst has determined that the intrinsic value of HPQ stock is $20 per share using the capitalized earnings model. If the typical P/E ratio in the computer industry is 25, then it would be reasonable to assume the expected EPS of HPQ in the coming year is A. $3.63. B. $4.44. C. $0.80. D. $22.50.

Q: Suppose that the average P/E multiple in the gas industry is 17. KMP is expected to have an EPS of $5.50 in the coming year. The intrinsic value of KMP stock should be A. $28.12. B. $93.50. C. $63.00. D. $72.00. E. None of the options are correct.

Q: Suppose that the average P/E multiple in the oil industry is 16. Shell Oil is expected to have an EPS of $4.50 in the coming year. The intrinsic value of Shell Oil stock should be A. $28.12. B. $35.55. C. $63.00. D. $72.00. E. None of the options are correct.

Q: Suppose that the average P/E multiple in the oil industry is 22. Exxon is expected to have an EPS of $1.50 in the coming year. The intrinsic value of Exxon stock should be A. $33.00. B. $35.55. C. $63.00. D. $72.00. E. None of the options are correct.

Q: Suppose that the average P/E multiple in the oil industry is 20. Dominion Oil is expected to have an EPS of $3.00 in the coming year. The intrinsic value of Dominion Oil stock should be A. $28.12. B. $35.55. C. $60.00. D. $72.00. E. None of the options are correct.

Q: High Tech Chip Company paid a dividend last year of $2.50. The expected ROE for next year is 12.5%. An appropriate required return on the stock is 11%. If the firm has a plowback ratio of 60%, the dividend in the coming year should be A. $1.00. B. $2.50. C. $2.69. D. $2.81. E. None of the options are correct.

Q: A company paid a dividend last year of $1.75. The expected ROE for next year is 14.5%. An appropriate required return on the stock is 10%. If the firm has a plowback ratio of 75%, the dividend in the coming year should be A. $1.80. B. $2.12. C. $1.77. D. $1.94.

Q: High Tech Chip Company is expected to have EPS in the coming year of $2.50. The expected ROE is 12.5%. An appropriate required return on the stock is 11%. If the firm has a plowback ratio of 70%, the growth rate of dividends should be A. 5.00%. B. 6.25%. C. 6.60%. D. 7.50%. E. 8.75%.

Q: Fools Gold Mining Company is expected to pay a dividend of $8 in the upcoming year. Dividends are expected to decline at the rate of 2% per year. The risk-free rate of return is 6%, and the expected return on the market portfolio is 14%. The stock of Fools Gold Mining Company has a beta of 0.25. The return you should require on the stock is A. 2%. B. 4%. C. 6%. D. 8%.

Q: Midwest Airline is expected to pay a dividend of $7 in the coming year. Dividends are expected to grow at the rate of 15% per year. The risk-free rate of return is 6%, and the expected return on the market portfolio is 14%. The stock of Midwest Airline has a beta of 3.00. The return you should require on the stock is A. 10%. B. 18%. C. 30%. D. 42%.

Q: Torque Corporation is expected to pay a dividend of $1.00 in the upcoming year. Dividends are expected to grow at the rate of 6% per year. The risk-free rate of return is 5%, and the expected return on the market portfolio is 13%. The stock of Torque Corporation has a beta of 1.2. What is the intrinsic value of Torque's stock? A. $14.29 B. $14.60 C. $12.33 D. $11.62

Q: Torque Corporation is expected to pay a dividend of $1.00 in the upcoming year. Dividends are expected to grow at the rate of 6% per year. The risk-free rate of return is 5%, and the expected return on the market portfolio is 13%. The stock of Torque Corporation has a beta of 1.2. What is the return you should require on Torque's stock? A. 12.0% B. 14.6% C. 15.6% D. 20% E. None of the options are correct.

Q: If a firm's sales decrease by 15%, and profits decrease by 20% during a recession, the firm's operating leverage is A. -1.33. B. 0.75. C. 5. D. −5.

Q: Two firms, C and D, both produce coat hangers. The price of coat hangers is $1.20 each. Firm C has total fixed costs of $750,000 and variable costs of 30 per coat hanger. Firm D has total fixed costs of $400,000 and variable costs of 50 per coat hanger. The corporate tax rate is 40%. If the economy is strong, each firm will sell 2,000,000 coat hangers. If the economy enters a recession, each firm will sell 1,400,000 coat hangers. If the economy is strong, the after-tax profit of firm C will be A. $0. B. $6,000. C. $36,000. D. $60,000. E. -$630,000.

Q: Two firms, C and D, both produce coat hangers. The price of coat hangers is $1.20 each. Firm C has total fixed costs of $750,000 and variable costs of 30 per coat hanger. Firm D has total fixed costs of $400,000 and variable costs of 50 per coat hanger. The corporate tax rate is 40%. If the economy is strong, each firm will sell 2,000,000 coat hangers. If the economy enters a recession, each firm will sell 1,400,000 coat hangers. If the economy is strong, the tax of firm C will be A. -$420,000. B. $750,000. C. $510,000. D. $204,000.

Q: Two firms, C and D, both produce coat hangers. The price of coat hangers is $1.20 each. Firm C has total fixed costs of $750,000 and variable costs of 30 per coat hanger. Firm D has total fixed costs of $400,000 and variable costs of 50 per coat hanger. The corporate tax rate is 40%. If the economy is strong, each firm will sell 2,000,000 coat hangers. If the economy enters a recession, each firm will sell 1,400,000 coat hangers. If the economy is strong, the before-tax profit of firm C will be A. $1,680,000. B. -$1,050,000. C. $510,000. D. $204,000.

Q: Two firms, C and D, both produce coat hangers. The price of coat hangers is $1.20 each. Firm C has total fixed costs of $750,000 and variable costs of 30 per coat hanger. Firm D has total fixed costs of $400,000 and variable costs of 50 per coat hanger. The corporate tax rate is 40%. If the economy is strong, each firm will sell 2,000,000 coat hangers. If the economy enters a recession, each firm will sell 1,400,000 coat hangers. If the economy is strong, the total cost of firm C will be A. $1,680,000. B. $1,170,000. C. -$1,350,000. D. $420,000.

Q: Two firms, C and D, both produce coat hangers. The price of coat hangers is $1.20 each. Firm C has total fixed costs of $750,000 and variable costs of 30 per coat hanger. Firm D has total fixed costs of $400,000 and variable costs of 50 per coat hanger. The corporate tax rate is 40%. If the economy is strong, each firm will sell 2,000,000 coat hangers. If the economy enters a recession, each firm will sell 1,400,000 coat hangers. If the economy is strong, the total revenue of firm C will be A. $1,680,000. B. $1,400,000. C. $2,000,000. D. -$2,400,000.

Q: Two firms, C and D, both produce coat hangers. The price of coat hangers is $1.20 each. Firm C has total fixed costs of $750,000 and variable costs of 30 per coat hanger. Firm D has total fixed costs of $400,000 and variable costs of 50 per coat hanger. The corporate tax rate is 40%. If the economy is strong, each firm will sell 2,000,000 coat hangers. If the economy enters a recession, each firm will sell 1,400,000 coat hangers. If the economy enters a recession, the after-tax profit of firm C will be A. $1,680,000. B. $750,000. C. $510,000. D. $204,000. E. -$306,000.

Q: Two firms, C and D, both produce coat hangers. The price of coat hangers is $1.20 each. Firm C has total fixed costs of $750,000 and variable costs of 30 per coat hanger. Firm D has total fixed costs of $400,000 and variable costs of 50 per coat hanger. The corporate tax rate is 40%. If the economy is strong, each firm will sell 2,000,000 coat hangers. If the economy enters a recession, each firm will sell 1,400,000 coat hangers. If the economy enters a recession, the tax of firm C will be A. $1,680,000. B. $750,000. C. $510,000. D. -$204,000.

Q: Two firms, C and D, both produce coat hangers. The price of coat hangers is $1.20 each. Firm C has total fixed costs of $750,000 and variable costs of 30 per coat hanger. Firm D has total fixed costs of $400,000 and variable costs of 50 per coat hanger. The corporate tax rate is 40%. If the economy is strong, each firm will sell 2,000,000 coat hangers. If the economy enters a recession, each firm will sell 1,400,000 coat hangers. If the economy enters a recession, the before-tax profit of firm C will be A. $1,680,000. B. $1,170,000. C. -$510,000. D. $204,000.

Q: Two firms, C and D, both produce coat hangers. The price of coat hangers is $1.20 each. Firm C has total fixed costs of $750,000 and variable costs of 30 per coat hanger. Firm D has total fixed costs of $400,000 and variable costs of 50 per coat hanger. The corporate tax rate is 40%. If the economy is strong, each firm will sell 2,000,000 coat hangers. If the economy enters a recession, each firm will sell 1,400,000 coat hangers. If the economy enters a recession, the total cost of firm C will be A. $1,680,000. B. -$1,170,000. C. $750,000. D. $420,000.

Q: Two firms, C and D, both produce coat hangers. The price of coat hangers is $1.20 each. Firm C has total fixed costs of $750,000 and variable costs of 30 per coat hanger. Firm D has total fixed costs of $400,000 and variable costs of 50 per coat hanger. The corporate tax rate is 40%. If the economy is strong, each firm will sell 2,000,000 coat hangers. If the economy enters a recession, each firm will sell 1,400,000 coat hangers. If the economy enters a recession, the total revenue of firm C will be A. -$1,680,000. B. $1,400,000. C. $2,000,000. D. $0. E. None of the options are correct.

Q: An example of a defensive industry is A. the automobile industry. B. the tobacco industry. C. the food industry. D. the automobile industry and the tobacco industry. E. -the tobacco industry and the food industry.

Q: If interest rates decrease, business investment expenditures are likely to ______, and consumer durable expenditures are likely to _________. A. -increase; increase B. increase; decrease C. decrease; increase D. decrease; decrease E. be unaffected; be unaffected

Q: Assume the U.S. government was to decide to increase the budget field. Holding all else constant, this will cause ______ to increase. A. interest rates B. government borrowing C. unemployment D. -interest rates and government borrowing E. None of the options are correct.

Q: According to Michael Porter, there are five determinants of competition. An example of _____ is when a buyer purchases a large fraction of an industry's output and can demand price concessions. A. threat of entry B. rivalry between existing competitors C. pressure from substitute products D. -bargaining power of buyers E. bargaining power of suppliers

Q: According to Michael Porter, there are five determinants of competition. An example of _____ is when the availability limits the prices that can be charged to customers. A. threat of entry B. rivalry between existing competitors C. -pressure from substitute products D. bargaining power of buyers E. bargaining power of suppliers

Q: According to Michael Porter, there are five determinants of competition. An example of _____ is when competitors seek to expand their share of the market. A. threat of entry B. -rivalry between existing competitors C. pressure from substitute products D. bargaining power of buyers E. bargaining power of suppliers

Q: According to Michael Porter, there are five determinants of competition. An example of _____ is the threat new competitors pose to existing competitors in an industry. A. -threat of entry B. rivalry between existing competitors C. pressure from substitute products D. bargaining power of buyers E. bargaining power of suppliers

Q: Sector rotation A. should always be carried out. B. is never worthwhile. C. -is shifting the portfolio more heavily toward an industry or sector that is expected to perform well in the future. D. can be implemented without cost.

Q: The emerging stock market exhibiting the highest local currency return in 2015 was A. -Russia B. China. C. Singapore. D. Mexico. E. Brazil.

Q: During which stage of the industry life cycle would a firm experience stable growth in sales? A. -Consolidation B. Relative decline C. Maturity D. Start-up E. Stabilization

Q: An example of a negative demand shock is A. a decrease in the money supply. B. a decrease in government spending. C. an increase in foreign export demand. D. a decrease in the price of imported oil. E. -a decrease in the money supply and a decrease in government spending.

Q: An example of a positive demand shock is A. a decrease in the money supply. B. a decrease in government spending. C. a decrease in foreign export demand. D. a decrease in the price of imported oil. E. -a decrease in tax rates.

Q: Which of the following are key economic statistics that are used to describe the state of the macroeconomy? I) Gross domestic product II) The unemployment rate III) Inflation IV) Consumer sentiment V) The budget deficit A. I, II, and V B. I, III, and V C. I, II, and III D. I, II, III, and V E. -I, II, III, IV, and V

Q: Investors can ______ invest in an industry with the highest expected return by purchasing ______. A. -most easily; industry-specific iShares B. not; industry-specific iShares C. most easily; industry-specific ADRs D. not; individual stocks E. None of the options are correct.

Q: The industry with the highest return in 2016 was A. trucking. B. -water utilities. C. health plans. D. asset management. E. money center banks.

Q: The industry with the lowest return in 2016 was A. -asset management. B. telecom services. C. health care. D. business software. E. money center banks.

Q: The industry with the lowest ROE in 2015-2016 was A. money center banks. B. chemical products. C. business software. D. biotech. E. -integrated oil and gas.

Q: The industry with the highest ROE in 2015-2016 was A. -major airlines. B. trucking. C. business software. D. computer systems. E. integrated oil and gas.

Q: In recent years, P/E multiples for S&P 500 companies have A. ranged from −1 to −10. B. ranged from 1 to 8. C. ranged from 6 to 10. D. -ranged from 12 to 25. E. ranged from 20 to more than 50.

Q: A top-down analysis of a firm's prospects starts with A. an examination of the firm's industry. B. an evaluation of the firm's position within its industry. C. a forecast of interest-rate movements. D. -an assessment of the broad economic environment. E. the application of the CAPM to find the firm's theoretical return.

Q: Investment manager Peter Lynch refers to firms that are in bankruptcy or soon might be as A. slow growers. B. stalwarts. C. cyclicals. D. asset plays. E. -turnarounds.

Q: The life cycle stage in which industry leaders are likely to emerge is the A. start-up stage. B. maturity stage. C. -consolidation stage. D. relative decline stage. E. All of the options are correct.

Q: The stock market exhibiting the highest U.S. dollar return in 2015 was A. -Japan. B. Singapore. C. Greece. D. South Korea. E. China.

Q: The process of estimating the dividends and earnings that can be expected from the firm based on determinants of value is called A. business-cycle forecasting. B. macroeconomic forecasting. C. technical analysis. D. -fundamental analysis. E. None of the options are correct.

Q: A variety of factors relating to industry structure affect the performance of the firm, including A. threat of entry. B. rivalry between existing competitors. C. the state of the economy. D. threat of entry and the state of the economy. E. -threat of entry and rivalry between existing competitors.

Q: In the decline stage of the industry life cycle, A. the product may have reached obsolescence. B. the industry will grow at a rate less than the overall economy. C. the industry may experience negative growth. D. the product may have reached obsolescence, and the industry will grow at a rate less than the overall economy. E. -the product may have reached obsolescence, the industry will grow at a rate less than the overall economy, and the industry may experience negative growth.

Q: In the maturity stage of the industry life cycle, A. the product has reached full potential. B. profit margins are narrower. C. producers are forced to compete on price to a greater extent. D. the product has reached full potential and profit margins are narrower. E. -the product has reached full potential, profit margins are narrower, and producers are forced to compete on price to a greater extent.

Q: In the consolidation stage of the industry life cycle, A. it is difficult to predict which firms will succeed and which firms will fail. B. industry growth is very rapid. C. -the performance of firms will more closely track the performance of the overall industry. D. it is difficult to predict which firms will succeed and which firms will fail, and industry growth is very rapid. E. industry growth is very rapid, and the performance of firms will more closely track the performance of the overall industry.

Q: In the start-up stage of the industry life cycle, A. it is difficult to predict which firms will succeed and which firms will fail. B. industry growth is very rapid. C. firms pay a high level of dividends. D. -it is difficult to predict which firms will succeed and which firms will fail, and industry growth is very rapid. E. industry growth is very rapid, and firms pay a high level of dividends.

Q: The industry life cycle is described by which of the following stage(s)? A. Start-up B. Consolidation C. Absolute decline D. -Start-up and consolidation E. All of the options are correct.

Q: ________ is a proposition that a strong proponent of supply-side economics would most likely stress. A. Higher marginal tax rates will lead to a reduction in the size of the budget deficit and lower interest rates as they depend on government revenues B. -Higher marginal tax rates promote economic inefficiency and thereby retard aggregate output as they encourage investors to undertake low productivity projects with substantial tax shelter benefits C. Income redistribution payments will exert little impact on real aggregate supply as they do not consume resources directly D. A tax reduction will increase the disposable income of households, and thus, the primary impact of a tax reduction on aggregate supply will stem from the influence of the tax change on the size of the budget deficit or surplus E. None of the options is a likely statement for a supply-side proponent.

Q: Which of the following are examples of defensive industries? A. Food producers B. Durable goods producers C. Pharmaceutical firms D. Public utilities E. -Food producers, pharmaceutical firms, and public utilities

Q: Which of the following are not examples of defensive industries? A. Food producers B. -Durable goods producers C. Pharmaceutical firms D. Public utilities

Q: Supply-side economists wishing to stimulate the economy are most likely to recommend A. a decrease in the money supply. B. a decrease in production output. C. an increase in the real interest rate. D. a decrease in the tax rate. E. -an increase in mortgage rates.

Q: Classifying firms into groups, such as _________, provides an alternative to the industry life cycle. A. slow-growers B. stalwarts C. countercyclicals D. -slow-growers and stalwarts E. slow-growers and countercyclicals

Q: Two firms, A and B, both produce widgets. The price of widgets is $1 each. Firm A has total fixed costs of $500,000 and variable costs of 50 per widget. Firm B has total fixed costs of $240,000 and variable costs of 75 per widget. The corporate tax rate is 40%. If the economy is strong, each firm will sell 1,200,000 widgets. If the economy enters a recession, each firm will sell 1,100,000 widgets. Calculate firm B's degree of operating leverage. A. .714 B. 9.09 C. -7.86 D. 7.14

Q: Two firms, A and B, both produce widgets. The price of widgets is $1 each. Firm A has total fixed costs of $500,000 and variable costs of 50 per widget. Firm B has total fixed costs of $240,000 and variable costs of 75 per widget. The corporate tax rate is 40%. If the economy is strong, each firm will sell 1,200,000 widgets. If the economy enters a recession, each firm will sell 1,100,000 widgets. Calculate firm A's degree of operating leverage. A. -11.0 B. 2.86 C. 9.09 D. 1.00

Q: Two firms, A and B, both produce widgets. The price of widgets is $1 each. Firm A has total fixed costs of $500,000 and variable costs of 50 per widget. Firm B has total fixed costs of $240,000 and variable costs of 75 per widget. The corporate tax rate is 40%. If the economy is strong, each firm will sell 1,200,000 widgets. If the economy enters a recession, each firm will sell 1,100,000 widgets. If the economy is strong, the after-tax profit of Firm B will be A. $0. B. $6,000. C. -$36,000. D. $60,000.

Q: Two firms, A and B, both produce widgets. The price of widgets is $1 each. Firm A has total fixed costs of $500,000 and variable costs of 50 per widget. Firm B has total fixed costs of $240,000 and variable costs of 75 per widget. The corporate tax rate is 40%. If the economy is strong, each firm will sell 1,200,000 widgets. If the economy enters a recession, each firm will sell 1,100,000 widgets. If the economy is strong, the after-tax profit of Firm A will be A. $0. B. $6,000. C. $36,000. D. -$60,000.

Q: Two firms, A and B, both produce widgets. The price of widgets is $1 each. Firm A has total fixed costs of $500,000 and variable costs of 50 per widget. Firm B has total fixed costs of $240,000 and variable costs of 75 per widget. The corporate tax rate is 40%. If the economy is strong, each firm will sell 1,200,000 widgets. If the economy enters a recession, each firm will sell 1,100,000 widgets. If the economy enters a recession, the after-tax profit of Firm B will be A. $0. B. $6,000. C. $36,000. D. $60,000. E. -None of the options are correct.

Q: Two firms, A and B, both produce widgets. The price of widgets is $1 each. Firm A has total fixed costs of $500,000 and variable costs of 50 per widget. Firm B has total fixed costs of $240,000 and variable costs of 75 per widget. The corporate tax rate is 40%. If the economy is strong, each firm will sell 1,200,000 widgets. If the economy enters a recession, each firm will sell 1,100,000 widgets. If the economy enters a recession, the after-tax profit of Firm A will be A. $0. B. $6,000. C. -$30,000. D. $60,000. E. None of the options are correct.

Q: Inflation A. is the rate at which the general level of prices is increasing. B. rates are high when the economy is considered to be "overheated." C. is unrelated to unemployment rates. D. -is the rate at which the general level of prices is increasing, and rates are high when the economy is considered to be "overheated." E. is the rate at which the general level of prices is increasing and is unrelated to unemployment rates.

Q: Fiscal policy is difficult to implement quickly because A. it requires political negotiations. B. much of government spending is nondiscretionary and cannot be changed. C. increases in tax rates affect consumer spending gradually. D. -it requires political negotiations, and much of government spending is nondiscretionary and cannot be changed. E. it requires political negotiations, and increases in tax rates affect consumer spending gradually.

Q: Fiscal policy generally has a _______ direct impact than monetary policy on the economy, and the formulation and implementation of fiscal policy is ______ than that of monetary policy. A. more; quicker B. -more; slower C. less; quicker D. less; slower E. Cannot tell from the information given

Q: If interest rates increase, business investment expenditures are likely to ______, and consumer durable expenditures are likely to _________. A. increase; increase B. increase; decrease C. decrease; increase D. -decrease; decrease E. be unaffected; be unaffected

Q: The North American Industry Classification System (NAICS) codes A. are for firms that operate in the NAFTA region. B. group firms by industry. C. are a perfect classification system for firms. D. -are for firms that operate in the NAFTA region and group firms by industry. E. are for firms that operate in the NAFTA region and are a perfect classification system for firms.

Q: Increases in the money supply will cause demand for investment and consumption goods to _______ in the short run and cause prices to ________ in the long run. A. -increase; increase B. increase; decrease C. decrease; increase D. decrease; hold steady E. be unaffected; be unaffected

Q: If the currency of your country is appreciating, the result should be to ______ exports and to _______ imports. A. increase; increase B. increase; decrease C. -decrease; increase D. decrease; decrease E. not affect; not affect

Q: If the currency of your country is depreciating, the result should be to ______ exports and to _______ imports. A. increase; increase B. -increase; decrease C. decrease; increase D. decrease; decrease E. not affect; not affect

Q: Assume that the Federal Reserve decreases the money supply. This action will cause ________ to decrease. A. interest rates B. the unemployment rate C. -investment in the economy D. trade balance

Q: Assume the U.S. government was to decide to increase the budget field. Holding all else constant, this will cause ______ to decrease. A. interest rates B. government borrowing C. unemployment D. -interest rates and government borrowing E. None of the options are correct.