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NEW QUESTION: 1
Marie Williams, CFA, and David Pacious, CFA, are portfolio managers for Stillwell Managers. Williams and Pacious are attending a conference held by Henri Financial Education on the fundamentals of valuation for common stock, preferred stock, and other assets.
During the conference, the presenter uses an example of four different companies to illustrate the valuation of common stock from the perspective of a minority shareholder.
During the conference, the presenter uses an example of four different companies to illustrate the valuation of common stock from the perspective of a minority shareholder.
* Firm A is a noncyclical consumer products firm with a 50 year history. The firm pays a $1.80 dividend per share and attempts to increase dividends by 4% a year. Earnings and dividends have steadily increased for the past
20 years.
* Firm B is a technology firm. It has never paid a dividend and does not expect to in the near future.
Furthermore, due to large investments in new factories and equipment, the firm is not expected to generate positive free cash flow in the foreseeable future.
* Firm C is an industrial firm with currently very little competition and a dividend growth rate of 9% a year.
However, the profits in its product market have started to attract competitors and it is expected that Firm C's profits will slowly decline such that the dividend growth steadily falls each year until it reaches a growth rate of 4% a year.
* Firm D is a pharmaceutical firm that is currently enjoying high profits and paying dividends. However, the firm's strongest selling drug is coming off patent in three years. With no other drugs in the pipeline, the firm's dividend growth rate is expected to drop abruptly in three years and settle at a lower growth rate.
The next day, Pacious decides to put what he learned into practice. The stock he is valuing, Maple Goods and Services, currently pays a dividend of $3.00. The dividend growth rate is 25% and is expected to steadily decline over the next 8 years to a stable rate of 7% thereafter. Given its risk, Pacious estimates that the required return is 5%.
Williams analyzes the value of Mataka Plastics stock. Its dividend is expected to grow at a rate of 18% for the next four years, after which it will grow at 4%. This year's dividend is $5.00 and Williams estimates the required return at 15%.
From the seminar, Pacious learned that a firm's health can be gauged by the present value of its future investment opportunities (PVGO). Tackling a calculation, he uses the following example for Wood Athletic Supplies:
Stock price $90.00
Current earnings $5.50
Expected earnings $6.00
Required return on stock 15%
Pacious and Williams discuss the characteristics of firms in various stages of growth, where firms experience an initial growth phase, a transitional phase, and a maturity phase in their life. They both agree that the Gordon Growth Model is not always appropriate. Pacious makes the following statements.
Statement I: For firms in the initial growth phase, earnings are rapidly increasing, there are little or no dividends, and there is heavy reinvestment. The return on equity is, however, higher than the required return on the stock, the free cash flows to equity are positive, and the profit margin is high.
Statement 2: When estimating the terminal value in the three-stage dividend growth model, it can be estimated using the Gordon Growth Model or a price-multiple approach.
Regarding Pacious's statements on the stages of growth and the Gordon Growth Model, are both statements correct?
A. No, only Statement 2 is correct.
B. No, both statements are incorrect.
C. Yes.
Answer: A
Explanation:
Explanation/Reference:
Explanation:
Statement 1 is incorrect. All of Pacious's description of the initial growth phase is correct except that, in this stage, the free cash flows to equity are actually negative. This is due to the heavy capital investment.
Statement 2 is correct. The terminal value in the three-stage dividend growth model can be estimated using either approach. (Study Session 40, LOS 40.k,l)
NEW QUESTION: 2
HOTSPOT
You create the following Windows Communication Foundation (WCF) service.
The service is accessible at the URL of http://Service1/EmployeeService.svc.
You need to add the endpoint for the WCF service to the Web.config file.
How should you complete the markup? To answer, select the appropriate options in the answer area.
Hot Area:
Answer:
Explanation:
Explanation/Reference:
Explanation:
Box 1: address
Box 2: "http://Service1/EmployeeService.svc"
In WCF, an EndpointAddress models an endpoint reference (EPR) as defined in the WS-Addressing standard.
The address URI for most transports has four parts. For example, this URI, "http://www.fabrikam.com:322/ mathservice.svc/secureEndpoint" has the following four parts:
Scheme: http:
Machine: www.fabrikam.com
(Optional) Port: 322
Path: /mathservice.svc/secureEndpoint
Box 3:
The names and namespaces of the .NET types in the definition of contracts and operations are significant when contracts are converted into WSDL and when contract messages are created and sent. Therefore, it is strongly recommended that service contract names and namespaces are explicitly set using the Name and Namespace properties of all supporting contract attributes such as the ServiceContractAttribute, OperationContractAttribute, DataContractAttribute, DataMemberAttribute, and other contract attributes.
References: https://docs.microsoft.com/en-us/dotnet/framework/wcf/specifying-an-endpoint-address
https://docs.microsoft.com/en-us/dotnet/framework/wcf/designing-service-contracts
NEW QUESTION: 3
When you enter a foreign voucher with VAT tax using the Standard Voucher Entry application, the system triggers error 0960: VAT not Allowed with Currency Code.
What setting is required to allow this type of transaction to be entered?
A. The Tax Rate/Area must be set up to allow VAT tax on foreign vouchers.
B. The Standard Voucher Entry application processing option needs to be flagged to allow foreign transactions with VAT tax.
C. The Company must be set up to allow VAT tax on foreign vouchers.
D. The Voucher Master Business Function processing option needs to be flagged to allow foreign transactions with VAT tax.
E. The Tax Rules by Company must be set up to allow VAT tax on foreign vouchers.
Answer: B
Explanation:
Explanation/Reference:
Reference: https://docs.oracle.com/cd/E16582_01/doc.91/e15123/enterforeigncurrvouchers.htm#EOAMP00517
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