Home Depot

* Question 1

0 out of 1 points

| |

| An analyst produces the following set of forecasts for Company C.

                                                            Year t+1         Year t+2         Year t+3

Net profit                                            $10                  $120                $60

Ending book value of net assets          $1,030             $1,060             $1,000

Ending book value of net debt                        $720                $740                $800

At the end of year t, Company C’s book values of net assets and net debt are $1,000 and $700, respectively. The analyst expects that after year t+3 net profit will be $0 and the book values of net assets and net debt will remain constant (i.e., at their year t+3 levels). Company C’s cost of equity is 10%. Under these assumptions, the analyst’s estimate of Company C’s equity value at the end of year t isAnswer | | | |

| Selected Answer: |    None of the above |

Correct Answer: |    $307.96 |

| | | |

* Question 2

1 out of 1 points

| |

| Consider the following information about three industry peers:

                        ROE               Price to book ratio    Price/earnings ratio

Peer 1              20%                 0.2                               5

Peer 2              10%                 1                                  10

Peer 3              25%                 1                                  5

Which of the following statements about these industry peers is correct?Answer | | | |

| Selected Answer: |    Investors expect that the return on equity of the currently best performing peer is not sustainable in the future. |

Correct Answer: |    Investors expect that the return on equity of the currently best performing peer is not sustainable in the future. |

| | | |

* Question 3

1 out of 1 points

| |

| An analyst produces the following series of annual dividend forecasts for company A: Expected dividend...