CFA Level 1 Exam

3959 Questions

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Question No. 1

A value investor is examining shares of Clay Industries common stock for possible investor. This investor has a history of investing in companies trading below their "intrinsic value" and believes that ClayIndustries represents such a situation. In her research, this value investor has gathered the following information about Clay Industries:

Total assets: $150,000,000
Total liabilities: $119,000,000
Number of common shares outstanding: 1,000,000
Current stock price: $26.43 per share
Required return: 17% per year
Expected growth rate: 14.5% per year
Next dividend: $1.05 per share
Earnings per share: $2.85
Using this information, what is the price-to-book ratio for Clay Industries common stock? Further, are the beliefs of this value investor justified, assuming that the book value of Clay Industries accurately illustrates the liquidation value of the firm?
Choose the correct option from the given list.
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