Exam 14: Valuation: Market-Based Approaches

The market-to-book ratio is calculated by

The process of ___________________________________ stock prices assumes that intrinsic value equals market price.

The PEG ratio does not take into account differences in ____________________ and ________________________________________ across firms.

Which of the following ratios usually reflects investor's opinions of the future prospects for the firm?

All of the following are economic factors that will decrease a firm's value-to-book ratio over time except:

Why is book value often meaningless? What improvements to financial statements would make it more meaningful?

Discuss how risk and profitability factors cause differences in price-earnings ratios across firms.

The PE multiple assumes that firm value is the present value of a constant stream of _____________________________________________, discounted at a constant expected future discount rate.

Investors have invested $25,000 in common equity in a company. The investors expect that the company will reinvest all income back into projects. The company is forecasted to earn $6,000 the first year, $5,000 the second year, $5,500 the third year, and $6,244 each year after the third year. The company's current stock price is $17 per share. Assuming that the company has 3,200 shares outstanding and the risk-free rate of interest is 6%, calculate the price differential for this company.

Which of the following normally does not introduce measurement error into the calculation of P/E ratios?

The ______________________________ represents the value of the firm, based on book value of equity and forecasts of expected future earnings, in the absence of discounting for risk.

Under the value-to-book model a firm in steady state equilibrium earning ROCE = R_E will

Firms with low P/E ratios tend to have current residual income that is greater than _____________________________________________.

Economics teaches that, in equilibrium, firms will earn a return equal to the ______________________________.

Industries with relatively high market-to-book ratios are more likely to have ___________________________________ assets.

The theoretical PE model does not work when the growth rate in ____________________ exceeds the cost of equity capital.

A company with a PEG ratio of greater than one would be interpreted as having a stock price

The value-to-book ratio reflects an analyst's expectation of the firm's ____________________ value to book value.

Under the value-to-book model new projects will be abnormally profitable only when

What is a price differential and how is it computed? What information does a price differential provide to an analyst?