Fin 4460 exam 3 | Business & Finance homework help

Name____________________________________________
FIN 4460: Exam #3: Summer 2021
Multiple-choice questions are worth 3 points each for a total of 30 points.
1. Residual Earnings is defined as:
a. (ROCE-required return) Book Value of Debt
b. (ROCE-required return) Book Value of Equity
c. (ROCE-required return) Book Value of the Enterprise
2. Normal Forward P/E ratio is defined as:
a. (1+r)/r
b. 1/r
c. r/ (1+r)
3. Trailing P/E is defined as:
a. (Price+Dividend)/ Earnings
b. Dividends/Earnings
c. Price/Earnings
4. Abnormal Earnings Growth (AEG) is defined as:
a. Cumulative-dividend earnings-normal earnings
b. (EPS+DPS) (1+r)
c. PV of EPS
5. Dividend earnings + earnings is associated with the:
a. Abnormal Earnings Growth Model
b. Residual Earnings Model
c. Earnings that are based on the change in residual earnings model
6. Abnormal Earnings Growth (AEG) can:
a. Be a positive, negative number or zero number
b. Only positive
c. Only negative
7. The minimum New York Stock exchange price is:
a. A negative dollar amount like – $1.00
b. A positive one dollar amount $1.00
c. At lowest zero
8. The Change in Residual Earnings and Abnormal Earning Growth models use the following conceptual idea:
a. Future Value Interest Factor
b. Mixed Income Stream Factor
c. Perpetuity
9. The change in Residual Earnings and Abnormal earnings growth models are based on the idea:
a. VPS = Book value per share + the present value of projected earnings
b. VPS= Earnings per share + the present value of projected earnings
c. VPS = Dividends per share + the future value of projected earnings
10. The estimated formula value per share is $43 and the market price is $35. What should an investor that has a portfolio of stocks do?
a. Buy
b. Sell
c Hold
Problems: 70 points. Theyare shown on a per share basis.
Please show all of you work on the exam. Type your answers onto the exam. Thanks
1. Use the following information to calculate: A. Normal Forward P/E, b. Trailing P/E and c. Normal Trailing P/E.
The required return is 8%
Market Price per share $37.50
DPS= $.25
EPS =$3.00
Calculate the Following Ratios:
A: Normal Forward P/E:
B: Trailing P/E
C. Normal Trailing P/E:
2. Calculate the estimated value per share using theChange in Residual Earnings Method: Complete the chart:
N   0 1 2 3
2010 2011 2012 2013 2014
EPS $3.00 $3.60 $4.10 $5.50
DPS    .25 .25 .30 .35
Difference
BPS $15.00
ROCE
Residual Earnings
Change in RE
PV Change RE
PV of CV
Total
Capitalized VPS ________________________________________________________________________
Show RE Calculation: below
RE 2011:
RE 2012:
RE 2013:
RE 2014: _________________________________________________________________________
The required return is 8% and the growth rate is 2.5% after 2014.
CV uses the (1+g) adjustment
A. Complete the Table:
B. Calculate Value per Share using the change in residual earnings model:
3. Calculate the Abnormal Earnings Growth (AEG) Model using the information shown below:
Part A. Complete the Table. Please, note that DPS is show first followed by EPS.
Table ($) numbers are per share not total earnings or dividends.
N 0 1 2 3
2011   2012 2013 2014
DPS .25 .25   .30   .35
EPS   3.00 3.60 4.10 5.50
DPS earnings
EPS+ DPS earnings
Normal Earnings
AEG
PV of AEG
PV of Continuing Value
Total
Capitalized VPS
The growth rate after 2014 is 2.5% and reinvestment rate and discount rate or capitalization rate is 8%. Complete the chart.
CV uses the (1+g) adjustment
4. Chapter 7: Calculate the Expected Return (r) given the following information.
· The Book to Price ratio is 90%.
· Price is $100
· Growth rate (g) is 7%
· Earnings per share are $3.00
· Book Value is $90 per share
Calculate Expected Return:
5. Calculate the growth rate of a stock using the Residual Earnings Method that pays:
· EPS= $3.20
· Required return on equity is 3%
· BPS = $90
· Price per share is $100
Part A: Show the formula, load numbers into the formula and calculate the growth rate using Reverse Engineering g.