Finance Maths

1-Currently, the dividend-payout ratio (D/E) for the aggregate market is 60%, the required return (k) is 11%, and the expected growth rate for dividends (g) is 5%.
(A). Compute the current earnings multiplier.
(D). Starting with the initial conditions, you expect the dividend-payout ratio to be constant, the rate of inflation to decline by 3%, and the growth rate to decline by 1%. Compute the expected P/E.

2-Given the three EPS estimates in Problem 6, you are also given the following estimates related to the market earnings multiple:
                                          Pessimistic                            Consensus                               Optimistic
D/E                                         0.65                                     0.55                                         0.45 
Nominal RFR                            0.10                                     0.09                                         0.08 
Risk Premium                          0.05                                      0.04                                         0.03 
ROE                                        0.11                                     0.13                                          0.15 

a. Based on the three EPS and P/E estimates, compute the high, low, and consensus intrinsic market value for the S&P Industrials Index in 2013. 

b. Assuming that the S&P Industrials Index at the beginning of the year was priced at 20,050, compute your estimated rate of return under the three scenarios from Part a. assuming your required rate of return is equal to the consensus, how much would you weigh the S&P Industrials Index in your global portfolio?

3-You are analyzing the U.S equity market based upon the S&P Industrials Index and using the present value of free cash flow to equity technique. Your inputs are as follows:

 Beginning        FCFE: $80        K = 0.09

Growth Rate:
Year 1 - 3:                                     9%
4 - 6:                                            8%
7 and beyond                                7%

a. Assuming that the current value for the S&P Industrials Index is 2,050, would you underweight, overweight, or market weight the U.S. Equity market?

b. Assume that there is a 1 % increase in the rate of inflation-What would be the markets value, and how would you weights the U.S. market? State your assumptions.

4. Evaluate your industry in terms of the five factors that determine an industry’s intensity of competition. Based on this analysis, what are your expectations about the industry’s profitability in the short run (1 or 2 years) and the long run (5 to 10 years)?

5. Using Standard and Poor’s Analysts’ Handbook or another source, plot the latest 10 – year history of the preparing profit margin for the S&P Industrials Index, or another aggregate market series versus an industry of your choice, Is there a positive, negative, or zero correlation?

6. Prepare a table listing the variables that influence the earnings multiplier for your chosen industry and the market index series for the most recent 10 years.

a – Do the average dividend-payout ratios for your industry and the market index differ? How should the dividend payout influence the difference between the multiplier?

c- Analyze and discuss the different components of growth (retention rate, total asset turnover, total assets/equity, and profit margin) for your chosen industry and a market index during the most recent 10 years. Based on this analysis, how would you expect the growth rate for your industry to compare with the growth rate for the market index? How would this difference in expected growth affect the multiplier?