DCF VALUATION III Commodity companies Commodity companies have earnings that move up and down with commodity prices.

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DCF VALUATION III
Commodity companies
Commodity companies have earnings that move up
and down with commodity prices. Given that fact,
what would you expect the values for commodity
companies to do over a commodity price cycle?
a.
Stay constant
b.
Increase (decrease) as commodity prices increase
(decrease)
c.
Increase (decrease) as commodity prices decrease
(increase)
2
Financial Service companies
You are valuing a bank that is conservatively
capitalized, with a regulatory capital ratio that is well
above the regulatory minimum. How would you expect
to see this reflected in the company’s fundamentals?
a.High return on equity, low risk
b.Low return on equity, low risk
c.High return on equity, high risk
d.Low return on equity, high risk
3
Price and value
If you feel certain about your estimate of the value
of a company, and it is higher than the stock price,
you should be willing to put all of your money in that
stock.
a.
True
b.
False
Explain.

4
Forecasting in the face of uncertainty. A
test:
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
In which of these two cities would you find it easier
to forecast the weather?
Aswath Damodaran
5
But the payoff is greatest where there is
the most uncertainty…
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Aswath Damodaran
6

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