Question 1

Assuming that Ska's cost of equity capital is 14% and it expects to grow earnings at a rate of 8% per year, we would expect Ska's P/E ratio to be

Accepted Answer

A)  8 
B)  16.7 
C)  14 
D)  4.5 
A)  8 
B)  16.7 
C)  14 
D)  4.5

Question 2

Which of the following would not be an example of the use of a multiple when valuing common equity?

Accepted Answer

A)  Price-to-operating cash flow 
B)  Price-to-book. 
C)  Price-to-earnings. 
D)  Multiperiod discounted earnings models. 
A)  Price-to-operating cash flow 
B)  Price-to-book. 
C)  Price-to-earnings. 
D)  Multiperiod discounted earnings models.

Question 3

Sometimes a high market-to-book ratio is a result of having __________________________________________________.

Accepted Answer

off-balanc

Question 4

Book value per share may not approximate market value per share because:

Accepted Answer

A)  Land may have substantially increased in value. 
B)  Market value reflects future potential earning power. 
C)  Investments may have a market value substantially above the original cost. 
D)  All of these are reasons why book value per share may not approximate market value per share. 
A)  Land may have substantially increased in value. 
B)  Market value reflects future potential earning power. 
C)  Investments may have a market value substantially above the original cost. 
D)  All of these are reasons why book value per share may not approximate market value per share.

Question 5

The differences in industry market-to-book ratios may be the result of differences in growth, ROCE relative to RE, as well as differences in _______________________________________________________.

Accepted Answer

alternativ

Question 6

Wolverwine Company's current stock price is $45 per share and the company's trailing earnings per share were $2.12. Given that analysts are forecasting growth of 14% for Wolverwine, what is the company's PEG ratio?

Accepted Answer

A)  21.2 
B)  24.2 
C)  2.97 
D)  1.52 
A)  21.2 
B)  24.2 
C)  2.97 
D)  1.52

Question 7

Explain the analysts' role in making the capital markets efficient.

Accepted Answer

Analysts play a key role in making the c

Question 8

All of the following are accounting factors that can drive a firm's price-earnings ratio in a given period to be higher than that of other firms in the same industry except:

Accepted Answer

A)  non-recurring expenses or losses in that period 
B)  a greater degree of accounting conservatism that requires expensing R&D or other intangible asset-generating activities 
C)  a less conservative accounting stance that uses straight-line depreciation rather than accelerated methods. 
D)  a greater degree of accounting conservatism regarding accelerated depreciation of PP&E 
A)  non-recurring expenses or losses in that period 
B)  a greater degree of accounting conservatism that requires expensing R&D or other intangible asset-generating activities 
C)  a less conservative accounting stance that uses straight-line depreciation rather than accelerated methods. 
D)  a greater degree of accounting conservatism regarding accelerated depreciation of PP&E

Question 9

A company is expected to have a value of $142,857 at the start of next period and investors require a 14 percent return on equity capital. Using the assumptions of the price-earnings ratio, what would be the company's earnings for the current year?

Accepted Answer

A)  $20,000 
B)  $14,286 
C)  $2,800 
D)  $12,500 
A)  $20,000 
B)  $14,286 
C)  $2,800 
D)  $12,500

Question 10

Use the following information to answer the requirements:
 $\begin{array}{|l|l|l|}
\hline & \text { Conmany X } & \text { Conmany Y } \
\hline \text { Reported EPS } & \$ 15.00 & \$ 15.00 \
\hline \text { EPS decomposed: } & & \
\hline \text { Permanent } & 75 \% & 65 \% \
\hline \text { Transitory } & 20 \% & 25 \% \
\hline \text { Value-irrelevant } & 5 \% & 10 \% \
\hline & & 
\end{array}$
 Required:
a. Use a risk-adjusted cost of capital of 15% to calculate each firm's implied share price and earning multiples. What are the implicit share prices and earnings multiples for the two firms different?
b. Repeat requirement a., but use a risk-adjusted cost of capital of 8% instead.

Accepted Answer

a.
Company X
 @#IMG-DLM& @#IMG-DLM& Company Y
 @#IMG-DLM& @#IMG-DLM& The implied

Question 11

One problem with the price-earnings ratios commonly reported is that

Accepted Answer

A)  it divides share price, which reflects the present value of future earnings by historical earnings. 
B)  it divides share price, which reflects the present value of book value by historical earnings. 
C)  it does not take into consideration the present value of future earnings. 
D)  its based on analysts' expectations. 
A)  it divides share price, which reflects the present value of future earnings by historical earnings. 
B)  it divides share price, which reflects the present value of book value by historical earnings. 
C)  it does not take into consideration the present value of future earnings. 
D)  its based on analysts' expectations.

Question 12

A company is expected to generate $125,000 in earnings next period and requires a 16 percent return on equity capital. Using the assumptions of the price-earnings ratio what would be the company's value at the beginning of next period?

Accepted Answer

A)  $781,250 
B)  $1,250,000 
C)  $2,000,000 
D)  $125,000 
A)  $781,250 
B)  $1,250,000 
C)  $2,000,000 
D)  $125,000

Question 13

Assume an analyst is evaluating a firm with $1,000 of book value of common equity and a cost of equity capital equal to 8 percent. Assume that the analyst forecasts that the firm will earn ROCE of 14 percent until year 2016, when the firm will start earning ROCE equal to 8 percent. The company pays no dividends and will not engage in any stock transactions. Use this information to complete the following table and calculate the firm's value-to-book ratio.

Accepted Answer

The answer of Assume an analyst is evaluating a firm...

Question 14

The ______________________________ represents the difference between the current stock price and risk-neutral value.

Accepted Answer

The answer of The ______________________________ represents the difference between the...

Question 15

Which of the following ratios give a perspective on risk in the capital structure?

Accepted Answer

A)  Book value per share 
B)  Price/earnings ratio 
C)  Degree of financial leverage 
D)  Dividend yield 
A)  Book value per share 
B)  Price/earnings ratio 
C)  Degree of financial leverage 
D)  Dividend yield

Question 16

Trading on the equity is likely to be a good financial strategy for stockholders of companies having:

Accepted Answer

A)  Cyclically high and low amounts of reported earnings. 
B)  Steadily declining amounts of reported earnings. 
C)  Volatile fluctuations in reported earnings over short periods of time. 
D)  Steady amounts of reported earnings. 
A)  Cyclically high and low amounts of reported earnings. 
B)  Steadily declining amounts of reported earnings. 
C)  Volatile fluctuations in reported earnings over short periods of time. 
D)  Steady amounts of reported earnings.

Question 17

The value-to-book model indicates that a firm in steady state equilibrium earnings ROCE=RE will be valued at _________________________.

Accepted Answer

Question 18

Valuation using market multiples captures

Accepted Answer

A)  absolute valuation per dollar of book value or per dollar of earnings. 
B)  dollar of book value or dollar of earnings per dollar of common equity. 
C)  relative valuation per dollar of book value or per dollar of earnings. 
D)  intrinsic valuation per dollar of book value or per dollar of earnings. 
A)  absolute valuation per dollar of book value or per dollar of earnings. 
B)  dollar of book value or dollar of earnings per dollar of common equity. 
C)  relative valuation per dollar of book value or per dollar of earnings. 
D)  intrinsic valuation per dollar of book value or per dollar of earnings.

Question 19

The price differential, or the amount by which the market has discounted share price for risk, is calculated by

Accepted Answer

A)  subtracting the book value from the residual income model book value calculated using the risk free rate. 
B)  subtracting the market price from the residual income model price calculated using the risk free rate. 
C)  multiplying the theoretical price-earnings ratio by the market price. 
D)  subtracting the residual income model price calculated using RE from the residual income model price calculated using the risk free rate. 
A)  subtracting the book value from the residual income model book value calculated using the risk free rate. 
B)  subtracting the market price from the residual income model price calculated using the risk free rate. 
C)  multiplying the theoretical price-earnings ratio by the market price. 
D)  subtracting the residual income model price calculated using RE from the residual income model price calculated using the risk free rate.

Question 20

The market price of a share of common equity reflects

Accepted Answer

A)  the aggregated expectations of all of the market participants following that particular stock. 
B)  the present value of future residual income. 
C)  book value plus the present value of future residual income. 
D)  the correct value for the particular stock. 
A)  the aggregated expectations of all of the market participants following that particular stock. 
B)  the present value of future residual income. 
C)  book value plus the present value of future residual income. 
D)  the correct value for the particular stock.

Assuming that Ska's cost of equity capital is 14% and it expects to grow earnings at a rate of 8% per year, we would expect Ska's P/E ratio to be

Which of the following would not be an example of the use of a multiple when valuing common equity?

Sometimes a high market-to-book ratio is a result of having __________________________________________________.

Book value per share may not approximate market value per share because:

The differences in industry market-to-book ratios may be the result of differences in growth, ROCE relative to R_E, as well as differences in _______________________________________________________.

Wolverwine Company's current stock price is $45 per share and the company's trailing earnings per share were $2.12. Given that analysts are forecasting growth of 14% for Wolverwine, what is the company's PEG ratio?

Explain the analysts' role in making the capital markets efficient.

All of the following are accounting factors that can drive a firm's price-earnings ratio in a given period to be higher than that of other firms in the same industry except:

A company is expected to have a value of $142,857 at the start of next period and investors require a 14 percent return on equity capital. Using the assumptions of the price-earnings ratio, what would be the company's earnings for the current year?

One problem with the price-earnings ratios commonly reported is that

A company is expected to generate $125,000 in earnings next period and requires a 16 percent return on equity capital. Using the assumptions of the price-earnings ratio what would be the company's value at the beginning of next period?

The ______________________________ represents the difference between the current stock price and risk-neutral value.

Which of the following ratios give a perspective on risk in the capital structure?

Trading on the equity is likely to be a good financial strategy for stockholders of companies having:

The value-to-book model indicates that a firm in steady state equilibrium earnings ROCE=R_E will be valued at _________________________.

Valuation using market multiples captures

The price differential, or the amount by which the market has discounted share price for risk, is calculated by

The market price of a share of common equity reflects

Overview of Financial Reporting, Financial Statement Analysis, and Valuation

Asset and Liability Valuation and Income Measurement

Income Flows Versus Cash Flows: Understanding the Statement of Cash Flows

Profitability Analysis

Risk Analysis

Financing Activities

Investing Activities

Operating Activities

Accounting Quality

Forecasting Financial Statements

Risk-Adjusted Expected Rates of Return and the Dividends Valuation Approach

Valuation: Cash-Flow-Based Approaches

Valuation: Earnings-Based Approaches

Filters

Exam 14: Valuation: Market-Based Approaches

Assuming that Ska's cost of equity capital is 14% and it expects to grow earnings at a rate of 8% per year, we would expect Ska's P/E ratio to be

Which of the following would not be an example of the use of a multiple when valuing common equity?

Sometimes a high market-to-book ratio is a result of having __________________________________________________.

Book value per share may not approximate market value per share because:

The differences in industry market-to-book ratios may be the result of differences in growth, ROCE relative to RE, as well as differences in _______________________________________________________.

Wolverwine Company's current stock price is $45 per share and the company's trailing earnings per share were $2.12. Given that analysts are forecasting growth of 14% for Wolverwine, what is the company's PEG ratio?

Explain the analysts' role in making the capital markets efficient.

All of the following are accounting factors that can drive a firm's price-earnings ratio in a given period to be higher than that of other firms in the same industry except:

A company is expected to have a value of $142,857 at the start of next period and investors require a 14 percent return on equity capital. Using the assumptions of the price-earnings ratio, what would be the company's earnings for the current year?

One problem with the price-earnings ratios commonly reported is that

A company is expected to generate $125,000 in earnings next period and requires a 16 percent return on equity capital. Using the assumptions of the price-earnings ratio what would be the company's value at the beginning of next period?

The ______________________________ represents the difference between the current stock price and risk-neutral value.

Which of the following ratios give a perspective on risk in the capital structure?

Trading on the equity is likely to be a good financial strategy for stockholders of companies having:

The value-to-book model indicates that a firm in steady state equilibrium earnings ROCE=RE will be valued at _________________________.

Valuation using market multiples captures

The price differential, or the amount by which the market has discounted share price for risk, is calculated by

The market price of a share of common equity reflects

Overview of Financial Reporting, Financial Statement Analysis, and Valuation

Asset and Liability Valuation and Income Measurement

Income Flows Versus Cash Flows: Understanding the Statement of Cash Flows

Profitability Analysis

Risk Analysis

Financing Activities

Investing Activities

Operating Activities

Accounting Quality

Forecasting Financial Statements

Risk-Adjusted Expected Rates of Return and the Dividends Valuation Approach

Valuation: Cash-Flow-Based Approaches

Valuation: Earnings-Based Approaches

Filters

The differences in industry market-to-book ratios may be the result of differences in growth, ROCE relative to R_E, as well as differences in _______________________________________________________.

The value-to-book model indicates that a firm in steady state equilibrium earnings ROCE=R_E will be valued at _________________________.