Series 79 Ch 3 Question and answers already passed
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Course
GARP
Institution
GARP
Series 79 Ch 3 Question and answers already passed What happens when a company does a sale-leaseback and distributes the proceeds as a dividend? - correct answer Debt will stay the same, but equity will fall because dividends reduce equity. So the debt to equity ratio will increase / worsen.
W...
Series 79 Ch 3-5
What happens when a company does a sale-leaseback and distributes the
proceeds as a dividend? - correct answer ✔Debt will stay the same, but
equity will fall because dividends reduce equity. So the debt to equity ratio will
increase / worsen.
What is a company's interest coverage? - correct answer ✔EBITDA/interest
expense
What is a company's dividend yield? - correct answer ✔ANNUAL
dividend/stock price
Note that you can thus calculate stock price with annual dividend/dividend
yield
How do you calculate the current yield of a bond? - correct answer ✔Annual
Interest / Current Market Price
How can you calculate earnings yield? - correct answer ✔1. EPS/stock price
2. Net income/equity value
3. 1/(P/E)
What is the dividend payout ratio? - correct answer ✔Dividends paid/net
income
Annual dividends per share/REPORTED (not diluted) EPS
How can you calculate the amount of interest saved after a debt refinancing? -
correct answer ✔(Old coupon - new coupon) x (# outstanding bonds/2)
, Dividing by 2 is to make it the semiannual savings if that's what you want
How do you calculate the P/E multiple? - correct answer ✔Per share basis:
stock price/EPS
Overall company basis: equity value/net income
Note that you can rearrange these to calculate implied stock price and implied
equity value
What is the PEG ratio and how is it calculated? - correct answer ✔(P/E)/EPS
Growth
Basically adds expected earnings growth to give a more complete picture.
Considered to be an indicator of a stock's true value, and similar to the P/E
ratio, a lower PEG may indicate that a stock is undervalued.
This is an equity ratio, so it uses post tax EPS
What are GARP investors and what do they look for? What about value
investors? - correct answer ✔GARP investors purchase securities with
growth rates that are expected to exceed the market but are valued below the
market. These investors prefer low PEG ratios (less than 1.0). For example, if
the PE ratio is smaller (11x) than the growth rate (14%) that is a good PEG
ratio (.79) for GARP investors.
Value investors look for businesses with low ratios that might be undervalued
- so they want low PEG ratios too.
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