Reference no: EM133264475

Question 1. The most recent kink point (e.g., peak or trough) in a business cycle announced by NBER was a trough in April 2020. You are a portfolio manager and try to allocate funds among several industries: automobiles, pharmaceuticals, food, and consumer electronics. What industries you should invest if you make decisions solely based on business cycle dates? Explain.

Now assume that with additional analysis of various economic indicators at global, regional, and country level, you believe that the peak of current business cycle may have already appeared in the last quarter. Will this additional analysis have any impact on your investment decision? Explain.

Question 2. APC Inc. manufactures products that are mature in their product life cycles. The company is expected to pay a dividend in year 1 of $1.00, a dividend of $0.90 in year 2, and a dividend of $0.85 in year 3. After year 3, dividends are expected to decline at a rate of 2% per year. As an analyst, you believe the appropriate required rate of return for APC Inc. is 8%. APC Inc.'s stock is trading at $10 right now. Will you recommend APC Inc's stock based on dividend discount model? Show your work.

Question 3. Utica Manufacturing Company is expected to have a revenue of $500,000 in 2022 with a cost of $100,000. The administrative expense is expected to be $80,000. At the end of 2021, the account receivable was $100,000; the inventory was $200,000; and the account payable was $50,000. By the end of 2021, the account receivable is expected to be $110,000; the inventory is expected to be $180,000; and the account payable is expected to be $60,000. It is expected that $200,000 will be spent in equipment purchase in 2022, and the depreciation for the year will be $100,000. Cash flows are expected to grow at 6% per year after 2022. The appropriate cost of capital for unleveraged cash flow is 15% per year. The firm has no outstanding debt. The firm's corporate tax rate is 30%. What is the value of the firm based on discounted cash flow approach? Assuming you are estimating at the beginning of 2022.

Question 4. As an analyst, you try to evaluate the intrinsic value of AMD (Nasdaq: AMD) by using financial multiples approach. To this end, you choose Nvidia (Nasdaq: NVDA) as a benchmark comparable firm. Using the financial statements information from any finance aggregation website such as Yahoo Finance, Google Finance, etc., you wan to estimate AMD by multiples such as P/E, P/S and P/CF. What are your conclusions about the intrinsic value of AMD's stock with different multiple methods? If the intrinsic values you find are different from the actual stock price of AMD, can you offer any insights or explanations?

For consistency, assume that you were doing this practice at the beginning of 2021 to estimate AMD stock price in 2021. To this end, you used end of 2021 fiscal year information in the financial statements for both companies as if they were your "projected numbers" for 2021. Nvidia stock price was $231.82 at the end of fiscal year 2021. For simplicity, use "free cash flow" from cash flow statements as the cash flow measure