Exam 11: Equity Analysis and Valuation

Alexas Corporation reports the following: Earnings per share \ 1.80 Dividends per share \ 0.72 Book value per share- at the end of the \ 8.62 year -Analysts' expected earnings for Alexas for next two years are: 2006: $2.00 2007: $2.23 Cost of equity is 15%. Return on equity is expected to equal cost of equity from 2008 onwards. Dividend payout ratio is expected to remain the same for 2006 and 2007. Price per share at the end of 2005 would be closest to:

Which of the following is not a form of earnings management?

Which of the following will affect observed price-to-book ratio? I. Expected ROCE II. Business risk III. Risk free rate of interest IV. Expected growth

A stock that has a high price-to-earnings ratio and a high price-to-book ratio is an indicator of a stock that is definitely overvalued.

A profitable high-tech company would generally have:

The more liberal the accounting methods used by a company, the lower the quality of earnings.

The value of common stockholders' equity can be estimated as the present value of future abnormal earnings discounted at the cost of equity.

The price-to-book ratio of a company can be shown to be a function of future expected return on common stockholders' equity and risk of equity capital.