Name_______________________

1.                  What stage in the industry life cycle would you view the soft drink industry (Coca-Cola, Pepsi) to be? Why?

2.                  If Coca-Cola stock has a beta of 1.1, the market’s expected rate of return is 12%, and the risk-free rate is 5%, what would the stocks required rate of return be?

3.                  What are the three primary sections of the statement of cash flows?

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4.                  If a stock has a retention ratio of 70% and a return on equity of 20%, what would the sustainable growth model predict to be its growth rate for EPS?

5.                  Using a constant growth model, compute the value of a stock that has a required rate of return of .15, a growth rate of .11, and a dividend of $1.25.

6-10.       Type in problem 9 on page 240.

11.              What is meant by the concept of rotational investing?

12.              If a stock has a current P/E of 45, a normal long-term P/E of 28, current EPS of $2.42, and estimated P/E for fiscal year 200 of $2.80, what would the pure short-term earnings model value the stock?

13.              What does the equity risk premium represent?

14.              What types of industries tend to carry the highest P/E ratios?

15.              Distinguish between value stocks and growth stocks.

16.              Describe the various economic structures of industries.

17.              If the beta on a stock were higher than the market’s beta (1.0), would you want a higher or lower rate of return?  Why?

18.              For cyclical companies why might the current P/E be misleading?

19.              Explain why the statement of cash flows is particularly relevant in light of the fact that the accrual method of accounting is used in the income statement and balance sheet.

20.              Why do fast growing companies tend to pay no dividends while mature companies have higher dividend yields?