You are analyzing the U.S. equity market based upon the S&P Industrials Index and using the...

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Finance

You are analyzing the U.S. equity market based upon the S&PIndustrials Index and using the present value of free cash flow toequity technique. Your inputs are as follows:
Beginning FCFE: $90
k = 0.09
Growth Rate:
Year 1–3: 9%
4–6: 8%
7 and beyond 7%
Assuming that the current value for the S&P IndustrialsIndex is 5,500, would you underweight, overweight, or market weightthe U.S. equity market? Do not round intermediate calculations.Round your answer to the nearest cent.
You should -Select-underweightoverweightmarket weightItem 1 theU.S. equity market as the estimated value of the stock of$ is -Select-higher thanlower thanequal torItem 3the S&P Industrials Index.
Assume that there is a 2 percent increase in the rate ofinflation — what would be the market’s value, and how would youweight the U.S. market? Assume that the required return wouldincrease from 9% to 11%, decreasing the value. Also assume that thenominal cash flow growth rates would increase for all time periodsby two percentage points. Do not round intermediate calculations.Round your answer to the nearest cent.
You should -Select-underweightoverweightmarket weightItem 4 theU.S. equity market as the estimated value of the stock of$ is -Select-higher thanlower thanequal torItem 6than the S&P Industrials Index.

Answer & Explanation Solved by verified expert

4.4 Ratings (735 Votes)

F0Beginning FCFE90g1Growth Rate Year139F1F01g1FCFE in Year 19810F2F11g1FCFE in Year 210693F3F21g1FCFE in Year 311655g2Growth Rate Year468F4F31g2FCFE in Year 412588F5F41g2FCFE in Year 513595F6F51g2FCFE in Year 614682g3Growth See Answer

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You are analyzing the U.S. equity market based upon the S&PIndustrials Index and using the present value of free cash flow toequity technique. Your inputs are as follows:Beginning FCFE: $90k = 0.09Growth Rate:Year1–3:9%4–6:8%7 and beyond7%Assuming that the current value for the S&P IndustrialsIndex is 5,500, would you underweight, overweight, or market weightthe U.S. equity market? Do not round intermediate calculations.Round your answer to the nearest cent.You should -Select-underweightoverweightmarket weightItem 1 theU.S. equity market as the estimated value of the stock of$ is -Select-higher thanlower thanequal torItem 3the S&P Industrials Index.Assume that there is a 2 percent increase in the rate ofinflation — what would be the market’s value, and how would youweight the U.S. market? Assume that the required return wouldincrease from 9% to 11%, decreasing the value. Also assume that thenominal cash flow growth rates would increase for all time periodsby two percentage points. Do not round intermediate calculations.Round your answer to the nearest cent.You should -Select-underweightoverweightmarket weightItem 4 theU.S. equity market as the estimated value of the stock of$ is -Select-higher thanlower thanequal torItem 6than the S&P Industrials Index.

Beginning FCFE: $90
k = 0.09

Growth Rate:
Year	1–3:	9%
	4–6:	8%
	7 and beyond	7%