Question 1

Which of the following are commonly examined during the process of a fundamental analysis?
I. sales
II. book value
III. earnings per share
IV. cash flow

Accepted Answer

A) I and II only 
B) I and IV only 
C) II, III, and IV only 
D) I, II, and IV only 
E) I, II, III, and IV 
A) I and II only 
B) I and IV only 
C) II, III, and IV only 
D) I, II, and IV only 
E) I, II, III, and IV

Question 2

Main Street Antiques is planning on paying an annual dividend of $2.20 per share next year. The company is slowly downsizing and is decreasing its dividend by 3 percent annually. What is the current value of this stock at a discount rate of 8 percent?

Accepted Answer

A) $18.86 
B) $19.12 
C) $19.40 
D) $20.00 
E) $20.20 
A) $18.86 
B) $19.12 
C) $19.40 
D) $20.00 
E) $20.20

Question 3

What is the percentage of a firm's earnings that is distributed to shareholders called?

Accepted Answer

A) payout ratio 
B) distribution percentage 
C) retention ratio 
D) dividend portion 
E) outflow ratio 
A) payout ratio 
B) distribution percentage 
C) retention ratio 
D) dividend portion 
E) outflow ratio

Question 4

Perry Adventures last annual dividend was $.70 a share. The firm will increase the dividend by 5 percent for the next 4 years and thereafter increase the dividend by 3 percent annually. What is this stock worth today if the required return is 10 percent?

Accepted Answer

A) $10.38 
B) $11.05 
C) $11.30 
D) $13.97 
E) $14.08 
A) $10.38 
B) $11.05 
C) $11.30 
D) $13.97 
E) $14.08

Question 5

Which one of the following models can be used to value the stock of a firm that maintains a one hundred percent retention ratio?

Accepted Answer

A) two-stage growth 
B) residual income 
C) perpetual dividend growth 
D) supernormal growth 
E) perpetual cash flow 
A) two-stage growth 
B) residual income 
C) perpetual dividend growth 
D) supernormal growth 
E) perpetual cash flow

Question 6

The Brown Jug has paid annual dividends of $.51, $.54, $.61, $.72, and $.78 per share over the past 5 years, respectively. What is the geometric average dividend growth rate for this period?

Accepted Answer

A) 5.47% 
B) 9.10% 
C) 11.21% 
D) 11.57% 
E) 11.95% 
A) 5.47% 
B) 9.10% 
C) 11.21% 
D) 11.57% 
E) 11.95%

Question 7

The price-sales ratio helps measure the ability of a firm to generate:

Accepted Answer

A) net profits. 
B) quality cash flows. 
C) higher earnings per share. 
D) higher cash flow per share. 
E) revenue growth. 
A) net profits. 
B) quality cash flows. 
C) higher earnings per share. 
D) higher cash flow per share. 
E) revenue growth.

Question 8

Which one of the following is used as an indicator that a firm has good-quality earnings?

Accepted Answer

A) declining price-earnings ratios 
B) constant price-earnings ratios 
C) cash flows per share that exceed earnings per share 
D) earnings per share that exceed cash flow per share 
E) positive earnings per share 
A) declining price-earnings ratios 
B) constant price-earnings ratios 
C) cash flows per share that exceed earnings per share 
D) earnings per share that exceed cash flow per share 
E) positive earnings per share

Question 9

The Watermelon Patch has a retention ratio of .75, dividends of $50,000, and total equity of $3.5 million. What is the firm's sustainable rate of growth?

Accepted Answer

A) 1.58% 
B) 4.29% 
C) 6.30% 
D) 7.38% 
E) 8.54% 
A) 1.58% 
B) 4.29% 
C) 6.30% 
D) 7.38% 
E) 8.54%

Question 10

The Diamond Outlet has current earnings per share of $2.20 and an expected earnings growth rate of 2.3 percent. The required return on the stock is 14 percent and the current book value per share is $15.25. What is the current market value of this stock?

Accepted Answer

A) $15.07 
B) $15.62 
C) $15.96 
D) $16.24 
E) $16.67 
A) $15.07 
B) $15.62 
C) $15.96 
D) $16.24 
E) $16.67

Question 11

What is the accounting relationship in which earnings per share minus dividends per share equals the change in book value per share called?

Accepted Answer

A) clean surplus relationship 
B) economic value added relationship 
C) accounting earnings identity 
D) payout-retention identity 
E) dividend valuation equation 
A) clean surplus relationship 
B) economic value added relationship 
C) accounting earnings identity 
D) payout-retention identity 
E) dividend valuation equation

Question 12

The method of valuing a stock based on the present value of the future income derived from that stock is called:

Accepted Answer

A) technical analysis. 
B) constant valuation. 
C) the basic stock valuation method. 
D) compound dividend analysis. 
E) the dividend discount model. 
A) technical analysis. 
B) constant valuation. 
C) the basic stock valuation method. 
D) compound dividend analysis. 
E) the dividend discount model.

Question 13

The Rug Barn has paid annual dividends of $1.30, $1.36, $1.40, $1.42, and $1.45 over the last 5 years, respectively. What is the geometric average dividend growth rate?

Accepted Answer

A) 1.98% 
B) 2.11% 
C) 2.39% 
D) 2.55% 
E) 2.77% 
A) 1.98% 
B) 2.11% 
C) 2.39% 
D) 2.55% 
E) 2.77%

Question 14

Best Value Outlet recently announced that it intends to pay dividends of $.40, $.60, $.75, and $1.00 per share over the next four years, respectively. After that, the plan is to increase the dividend by 3.5 percent annually. What is the current value of this stock if the applicable discount rate is 13.5 percent?

Accepted Answer

A) $6.44 
B) $7.83 
C) $8.17 
D) $9.55 
E) $13.10 
A) $6.44 
B) $7.83 
C) $8.17 
D) $9.55 
E) $13.10

Question 15

How is a sustainable dividend growth rate defined?

Accepted Answer

A) a constant rate at which dividends increase 
B) a rate of growth that does not exceed two percent of the annual increase in revenue 
C) a rate of growth that is set equal to one-half of the average growth rate of a firm's earnings 
D) a rate that can be supported over time by a company's earnings 
E) a rate of dividend growth that is equal to the discount rate used to value the firm's stock 
A) a constant rate at which dividends increase 
B) a rate of growth that does not exceed two percent of the annual increase in revenue 
C) a rate of growth that is set equal to one-half of the average growth rate of a firm's earnings 
D) a rate that can be supported over time by a company's earnings 
E) a rate of dividend growth that is equal to the discount rate used to value the firm's stock

Question 16

Factory Stores pays annual dividends and increases those dividends by 3 percent each year. The stock is currently valued at $11.80 a share and has a required return of 14 percent. You own 500 shares of this stock. What is the total amount of dividend income you should expect to receive next year?

Accepted Answer

A) $649 
B) $659 
C) $672 
D) $685 
E) $699 
A) $649 
B) $659 
C) $672 
D) $685 
E) $699

Question 17

The last annual dividend paid by New Technologies was $1.40 a share. Dividends for the next 3 years will be increased at an annual rate of 8 percent. After that, dividends are expected to increase by 3 percent each year. The discount rate is 16 percent. What is the current value of this stock?

Accepted Answer

A) $10.40 
B) $12.60 
C) $13.33 
D) $14.10 
E) $15.55 
A) $10.40 
B) $12.60 
C) $13.33 
D) $14.10 
E) $15.55

Question 18

The free cash flow model:
I. can be used to value a company with negative earnings.
II. is based on a firm having positive cash flows.
III. requires that a firm pay a dividend.
IV. directly estimates a value of a firm's equity.

Accepted Answer

A) I only 
B) I and II only 
C) I and III only 
D) I, II, and III only 
E) I, II, III, and IV 
A) I only 
B) I and II only 
C) I and III only 
D) I, II, and III only 
E) I, II, III, and IV

Question 19

Which of the following have the same meanings as the term "economic value added"?
I. abnormal earnings
II. residual income
III. value created by a firm over a period of time
IV. EPSt − Bt-1 × k

Accepted Answer

A) I and II only 
B) III and IV only 
C) I, II, and III only 
D) II, III, and IV only 
E) I, II, III, and IV 
A) I and II only 
B) III and IV only 
C) I, II, and III only 
D) II, III, and IV only 
E) I, II, III, and IV

Question 20

A firm's current stock price divided by its annual revenue per share is referred to as the:

Accepted Answer

A) price-earnings ratio. 
B) price-book ratio. 
C) price-income ratio. 
D) price-sales ratio. 
E) price-cash flow ratio. 
A) price-earnings ratio. 
B) price-book ratio. 
C) price-income ratio. 
D) price-sales ratio. 
E) price-cash flow ratio.

Which of the following are commonly examined during the process of a fundamental analysis? I. sales II. book value III. earnings per share IV. cash flow

Main Street Antiques is planning on paying an annual dividend of $2.20 per share next year. The company is slowly downsizing and is decreasing its dividend by 3 percent annually. What is the current value of this stock at a discount rate of 8 percent?

What is the percentage of a firm's earnings that is distributed to shareholders called?

Perry Adventures last annual dividend was $.70 a share. The firm will increase the dividend by 5 percent for the next 4 years and thereafter increase the dividend by 3 percent annually. What is this stock worth today if the required return is 10 percent?

Which one of the following models can be used to value the stock of a firm that maintains a one hundred percent retention ratio?

The Brown Jug has paid annual dividends of $.51, $.54, $.61, $.72, and $.78 per share over the past 5 years, respectively. What is the geometric average dividend growth rate for this period?

The price-sales ratio helps measure the ability of a firm to generate:

Which one of the following is used as an indicator that a firm has good-quality earnings?

The Watermelon Patch has a retention ratio of .75, dividends of $50,000, and total equity of $3.5 million. What is the firm's sustainable rate of growth?

The Diamond Outlet has current earnings per share of $2.20 and an expected earnings growth rate of 2.3 percent. The required return on the stock is 14 percent and the current book value per share is $15.25. What is the current market value of this stock?

What is the accounting relationship in which earnings per share minus dividends per share equals the change in book value per share called?

The method of valuing a stock based on the present value of the future income derived from that stock is called:

The Rug Barn has paid annual dividends of $1.30, $1.36, $1.40, $1.42, and $1.45 over the last 5 years, respectively. What is the geometric average dividend growth rate?

How is a sustainable dividend growth rate defined?

Factory Stores pays annual dividends and increases those dividends by 3 percent each year. The stock is currently valued at $11.80 a share and has a required return of 14 percent. You own 500 shares of this stock. What is the total amount of dividend income you should expect to receive next year?

The last annual dividend paid by New Technologies was $1.40 a share. Dividends for the next 3 years will be increased at an annual rate of 8 percent. After that, dividends are expected to increase by 3 percent each year. The discount rate is 16 percent. What is the current value of this stock?

The free cash flow model: I. can be used to value a company with negative earnings. II. is based on a firm having positive cash flows. III. requires that a firm pay a dividend. IV. directly estimates a value of a firm's equity.

Which of the following have the same meanings as the term "economic value added"? I. abnormal earnings II. residual income III. value created by a firm over a period of time IV. EPS_t − B_t-1× k

A firm's current stock price divided by its annual revenue per share is referred to as the:

A Brief History of Risk and Return

The Investment Process

Overview of Security Tips

Mutual Funds and Other Investment Companies

The Stock Market

Stock Price Behavior and Market Efficiency

Behavioral Finance and the Psychology of Investing

Interest Rates

Bond Prices and Yields

Diversification and Risky Asset Allocation

Return, Risk, and the Security Market Line

Performance Evaluation and Risk Management

Futures Contracts

Stock Options

Option Valuation

Alternative Investments

Corporate and Government Bonds

Projecting Cash Flow and Earnings

Global Economic Activity and Industry Analysis

Mortgage-Backed Securities

Filters

Exam 6: Common Stock Valuation

Which of the following are commonly examined during the process of a fundamental analysis? I. sales II. book value III. earnings per share IV. cash flow

Main Street Antiques is planning on paying an annual dividend of $2.20 per share next year. The company is slowly downsizing and is decreasing its dividend by 3 percent annually. What is the current value of this stock at a discount rate of 8 percent?

What is the percentage of a firm's earnings that is distributed to shareholders called?

Perry Adventures last annual dividend was $.70 a share. The firm will increase the dividend by 5 percent for the next 4 years and thereafter increase the dividend by 3 percent annually. What is this stock worth today if the required return is 10 percent?

Which one of the following models can be used to value the stock of a firm that maintains a one hundred percent retention ratio?

The Brown Jug has paid annual dividends of $.51, $.54, $.61, $.72, and $.78 per share over the past 5 years, respectively. What is the geometric average dividend growth rate for this period?

The price-sales ratio helps measure the ability of a firm to generate:

Which one of the following is used as an indicator that a firm has good-quality earnings?

The Watermelon Patch has a retention ratio of .75, dividends of $50,000, and total equity of $3.5 million. What is the firm's sustainable rate of growth?

The Diamond Outlet has current earnings per share of $2.20 and an expected earnings growth rate of 2.3 percent. The required return on the stock is 14 percent and the current book value per share is $15.25. What is the current market value of this stock?

What is the accounting relationship in which earnings per share minus dividends per share equals the change in book value per share called?

The method of valuing a stock based on the present value of the future income derived from that stock is called:

The Rug Barn has paid annual dividends of $1.30, $1.36, $1.40, $1.42, and $1.45 over the last 5 years, respectively. What is the geometric average dividend growth rate?

How is a sustainable dividend growth rate defined?

Factory Stores pays annual dividends and increases those dividends by 3 percent each year. The stock is currently valued at $11.80 a share and has a required return of 14 percent. You own 500 shares of this stock. What is the total amount of dividend income you should expect to receive next year?

The last annual dividend paid by New Technologies was $1.40 a share. Dividends for the next 3 years will be increased at an annual rate of 8 percent. After that, dividends are expected to increase by 3 percent each year. The discount rate is 16 percent. What is the current value of this stock?

The free cash flow model: I. can be used to value a company with negative earnings. II. is based on a firm having positive cash flows. III. requires that a firm pay a dividend. IV. directly estimates a value of a firm's equity.

Which of the following have the same meanings as the term "economic value added"? I. abnormal earnings II. residual income III. value created by a firm over a period of time IV. EPSt − Bt-1 × k

A firm's current stock price divided by its annual revenue per share is referred to as the:

A Brief History of Risk and Return

The Investment Process

Overview of Security Tips

Mutual Funds and Other Investment Companies

The Stock Market

Stock Price Behavior and Market Efficiency

Behavioral Finance and the Psychology of Investing

Interest Rates

Bond Prices and Yields

Diversification and Risky Asset Allocation

Return, Risk, and the Security Market Line

Performance Evaluation and Risk Management

Futures Contracts

Stock Options

Option Valuation

Alternative Investments

Corporate and Government Bonds

Projecting Cash Flow and Earnings

Global Economic Activity and Industry Analysis

Mortgage-Backed Securities

Filters

Which of the following have the same meanings as the term "economic value added"? I. abnormal earnings II. residual income III. value created by a firm over a period of time IV. EPS_t − B_t-1× k