1. Using market multiples to calculate a company’s value is a simple methodology, in that value is determined by taking a summary performance measure and multiplying by a market multiple. List the five steps an analyst would follow in estimating value using a market multiple.
2. A stock with a beta of 1.3 has an expected rate of return of 16%. If the market return this year turns out to be 8 percentage points below expectations, what is your best guess as to the rate of return on the stock?