FIN question

What would you look for to justify a price/book value ratio of 3.0? What would you
expect to be the characteristics of a firm with a P/BV ratio of 0.6?
You are told that a growth company has a P/E ratio of 13 times and a growth rate of
15 percent compared to the aggregate market, which has a growth rate of 8 percent
and a P/E ratio of 16 times. What does this comparison imply regarding the growth
company? What else do you need to know to properly compare the growth company
to the aggregate market?
Your client is considering the purchase of $100,000 in common stock, which pays no dividends
and will appreciate in market value by 10 percent per year. At the same time, the
client is considering an opportunity to invest $100,000 in a lease obligation that will provide
the annual year-end cash flows listed in Exhibit 14.23 below. Assume that each investment
will be sold at the end of three years and that you are given no additional
information.
Calculate the present value of each of the two investments assuming a 10 percent discount
rate, and state which one will provide the higher return over the three-year period.
Use the data in Exhibit 14.23, and show your calculations.

The constant-growth dividend discount model can be used both for the valuation of companies
and for the estimation of the long-term total return of a stock.
Assume: $20 = Price of a Stock Today
8% = Expected Growth Rate of Dividends
$0:60 = Annual Dividend One Year Forward
a. Using only the preceding data, compute the expected long-term total return on the
stock using the constant-growth dividend discount model.
b. Briefly discuss three disadvantages of the constant-growth dividend discount model in
its application to investment analysis.
c. Identify three alternative methods to the dividend discount model for the valuation of
companies.

What is the purpose of computing a moving-average line for a stock? Describe a bullish
pattern using a 50-day moving-average line and the stock volume of trading. Discuss
why this pattern is considered bullish.

Assuming a stock price and volume chart that also contains a 50-day and a 200-day MA
line, describe a bearish pattern with the two MA lines and discuss why it is bearish.

Currently, Charlotte Art Importers is selling at $23 per share. Although you are somewhat
dubious about technical analysis, you want to know how technicians who use point-andfigure
charts would view this stock. You decide to note one-point movements and threepoint
reversals. You gather the following historical price information:
Date Price Date Price Date Price
4/1 2312
4/18 33 5/3 27
4/4 2812
4/19 3538
5/4 2612
4/5 28 4/20 37 5/5 28
4/6 28 4/21 3812
5/6 2814
4/7 2934
4/22 36 5/9 2818
4/8 3012
4/25 35 5/10 2814
4/11 3012
4/26 3514
5/11 2918
4/12 3218
4/27 3318
5/12 3014
4/13 32 4/28 3278
5/13 2978
Plot the point-and-figure chart, using Xs for uptrends and Os for downtrends. How would
a technician evaluate these movements? Discuss why you would expect a technician to
buy, sell, or hold the stock based on this chart.

Assume the following daily closings for the Dow Jones Industrial Average:
Day DJIA Day DJIA
1 13,010 7 13,220
2 13,100 8 13,130
3 13,165 9 13,250
4 13,080 10 13,315
5 13,070 11 13,240
6 13,150 12 13,310
a. Calculate a four-day moving average for Days 4 through 12.
b. Assume that the index on Day 13 closes at 13,300. Would this signal a buy or sell
decision?