Equity1

Question 1

Perceived Mispricing

Answer 1

Estimated Value - Market Price

Question 2

Perceived Mispricing

Answer 2

55-56=-1

Question 3

True Mispricing

Answer 3

Intrinsic Value - Market Price

Question 4

True Mispricing

Answer 4

57-56=1

Question 5

Valulation error

Answer 5

Estimated value - Intrinsic Value

Question 6

Valulation error

Answer 6

55-57=-2

Question 7

Unadjusted historical Beta

Answer 7

1/3 =(2/3)Beta)= 1/3+(2/3).60
.33+.40
.73

Question 8

Estimated Unleaverd Beta

Answer 8

Beta(1/ (1+(d/e))
1.20(1/(1+.50)
.80

Question 9

levered Beta

Answer 9

.80*(1+.25)=1.00

Question 10

Ibbotson and chen Model equity risk premium

Answer 10

(1+inflation rate)(1+EPS growth rate)(1+P/E growth rate)-1 + income rate)- Treasury Bond YTM

Question 11

Ibbotson and chen Model equity risk premium

Answer 11

1. 031.041.00-1+.020-.050

9. 1-5.0=4.1

Question 12

ROE, return to equity

Answer 12

Net Profit margin* asset turnover* leverage factor

Question 13

ROE, return to equity

Answer 13

(NI/ sales)* (Sales/Assets)*(Assets/equity)

Question 14

ROE, return to equity

Answer 14

(10/200)(200/400)(400/100)

5.0%.54.0=10.00%

Question 15

Substainable Growth rate

Answer 15

(1-DPO)ROE
(1-.40)20%
12%

Question 16

DPO

Answer 16

DPS/EPS

2.00/5.00=.40

Question 17

ROE

Answer 17

EPS/BVPS

5.00/25.00=20.%

Question 18

Fama French Model -

Answer 18

Higher Mkt risk= higher equity discount rate
smaller Mkt risk= Higher equity discount rate
Lower book to mkt value results in higher equity discount rate

Question 19

Pastor - Stambaugh extension

Answer 19

Has four factors
Indicates for a company stock
Better liquity tends to result in lower equity discount rate
Worse liquity tends to result in a higher equity discount rate

Question 20

H model

Answer 20

2. 00(1.05) / ( .11-.05) +2.00(.20-.05)*(4/2)/(.11-.05)
3. 00+10.00
4. 00

Question 21

three stage model

Answer 21

2.00(1.20)/(1.11)+2.00(1.20)^2/(1.11^2)
+2.00(1.20)^21.15/ /(1.11)^3 +2.00(1.20)^21.15*1.10 / (1.11)^4+ 63.76(1.11)^4

2. 00(1.20)^21.151.10*(1.05) /.11-.05
3. 76

Question 22

Warranted Leading P/E

Corresponding price

Answer 22

DPO/ (K-G) (1-.40) / (.11-.06)
.60/.05 =12.0

EPS2Leading P/ E
6.0012.00= 72.00

Question 23

Warranted Leading P/S

Corresponding price

Answer 23

Net Profit Margin * DPO / (K-G) .10* (1-.40) / (.11-.06)
..60/.05 =1.20

SPS2Leading P/ E
60.001.20= 72.00

Question 24

Warranted Leading P/B

Corresponding price

Answer 24

( ROE-G ) / (K-G) .10* (15-..06) / (.11-.06)
.1.80

BVPS*(P/B)

40.00*1.80= 72.00

Question 25

Enterprise value

Answer 25

``` CS MKT Value 50 PS MKT Value 10 LTD Mkt Value 30 Cash and Cash equi(10) Investment Mkt Value (20) Enterprise Value 60 ```

Question 26

Enterprise value

Answer 26

Enterprise Value can be interpreted as the net debt free takeover cost of the company based on current market value.

Question 27

Trailing EV/ EBITA

Answer 27

60/20=3.0

Question 28

Momentum Indicators

Answer 28

Earnings Surprise Standardized unexpected earnings Relative Strengh relative to Index relative Strenth Relative to Own past performance

Question 29

Mkt abased valuation: price and enterprose value multiples

Answer 29

Arithmetic mean Weighted Avg Arithmetic Mean Harmonic Mean Weighted Harmonic Mean

Question 30

Residual Income

Answer 30

NI minis Equity Charge

Question 31

Equity Charge

Answer 31

Equity capital*K | 2,000,000*.12= 240,000

Question 32

Residual income

Answer 32

300,000-240,000= 60,000

Question 33

Estimated RIPS

Answer 33

EPS-(BVPS-Ks) 5. 00-(40.00*.10) 5. 00-4.00= 1. 00

Question 34

BVPS , end of year

Answer 34

BVPS+ EPS-DPS 40. 00-5.00-5.00*.40 40. 00+5.00-2.00= 43. 00

Question 35

Private Company Valuation

Answer 35

Transaction -related valuations Litigation -related valuation Compliance -related valuations

Question 36

Lack of control discount

Answer 36

Control Prem/ (1+Control Prem) | .25 /(1+.25) = .25/1.25=.20

Question 37

Combined Discount for Lack of control and lack of markerability

Answer 37

1-((1-lack of conrol discount)*(1-lack mktilty )) 1--(1-.20)*(1-.25) 1-.60 .40