Rip Curl Four Management Function Essay Essays and Term Papers
LA TROBE UNIVERSITY
SEMESTER ONE EXAMINATION PERIOD
2011
FIN5EQS
EQUITY SECURITIES
SAMPLE EXAM QUESTIONS
SAMPLE SECTION A (Multiple Choice) QUESTIONS
The following information relates to Questions 1 – 6.
Jacob Daniel is the chief investment officer at a U.S. pension fund sponsor, and Steven Rae is an analyst for the pension fund who follows consumer/non-cyclical stocks. At the beginning of the 2009, Daniel asks Rae to value the equity of Tasty Foods Company for its possible inclusion in the list of approved investments. Tasty Foods Company is involved in the production of frozen foods that are sold under its own brand name to retailers.
Rae is considering if a dividend discount mode would be appropriate for valuing Tasty Foods.
He has complied the information in the following table for the company’s EPS and DPS during the last five years. The quarterly dividends paid by the company have been added to arrive at the annual dividends. Rae has also computed the dividend payout ratio for each year as DPS/EPS and the growth rates in EPS and DPS.
Year
EPS ($)
DPS ($)
Payout Ratio
2008
2007
2006
2005
2004
2.12
2.06
2.01
1.89
1.78
0.59
0.57
0.54
0.51
0.48
0.278
0.277
0.269
0.270
0.270
Growth in
EPS (%)
2.9
2.5
6.3
6.2
Growth in
DPS (%)
3.5
5.6
5.9
6.3
Rae notes that the EPS of the company has been increasing at an average rate of 4.48% per year. The dividend payout ratio has remained fairly stable and dividends have increased at an average rate of 5.3%. In view of a history of dividend payments by the company and the understandable relationship dividend policy bears to the company’s earnings, Rae concludes that the DDM is appropriate to value the equity of Tasty Foods. Further, he expects the moderate growth rate of the company to persist and decides to use the Gordon growth model.
Rae uses the CAPM to compute the return on equity. He uses the annual yield of 4% on the
10-year Treasury
SEMESTER ONE EXAMINATION PERIOD
2011
FIN5EQS
EQUITY SECURITIES
SAMPLE EXAM QUESTIONS
SAMPLE SECTION A (Multiple Choice) QUESTIONS
The following information relates to Questions 1 – 6.
Jacob Daniel is the chief investment officer at a U.S. pension fund sponsor, and Steven Rae is an analyst for the pension fund who follows consumer/non-cyclical stocks. At the beginning of the 2009, Daniel asks Rae to value the equity of Tasty Foods Company for its possible inclusion in the list of approved investments. Tasty Foods Company is involved in the production of frozen foods that are sold under its own brand name to retailers.
Rae is considering if a dividend discount mode would be appropriate for valuing Tasty Foods.
He has complied the information in the following table for the company’s EPS and DPS during the last five years. The quarterly dividends paid by the company have been added to arrive at the annual dividends. Rae has also computed the dividend payout ratio for each year as DPS/EPS and the growth rates in EPS and DPS.
Year
EPS ($)
DPS ($)
Payout Ratio
2008
2007
2006
2005
2004
2.12
2.06
2.01
1.89
1.78
0.59
0.57
0.54
0.51
0.48
0.278
0.277
0.269
0.270
0.270
Growth in
EPS (%)
2.9
2.5
6.3
6.2
Growth in
DPS (%)
3.5
5.6
5.9
6.3
Rae notes that the EPS of the company has been increasing at an average rate of 4.48% per year. The dividend payout ratio has remained fairly stable and dividends have increased at an average rate of 5.3%. In view of a history of dividend payments by the company and the understandable relationship dividend policy bears to the company’s earnings, Rae concludes that the DDM is appropriate to value the equity of Tasty Foods. Further, he expects the moderate growth rate of the company to persist and decides to use the Gordon growth model.
Rae uses the CAPM to compute the return on equity. He uses the annual yield of 4% on the
10-year Treasury