Question 1

In the value-to-book model growth adds value to shareholders only if the growth is ________________________________________.

Accepted Answer

abnormally

Question 2

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 3

Strictly speaking, the price-earnings ratio assumes that firm value is the:

Accepted Answer

A)  future value of a constant stream of expected future earnings, discounted at a constant expected future risk-free rate. 
B)  future value of a constant stream of expected future earnings, discounted at a constant expected future discount rate. 
C)  present value of a constant stream of expected future earnings, discounted at a constant expected future risk-free rate. 
D)  present value of a constant stream of expected future earnings, discounted at a constant expected future discount rate. 
A)  future value of a constant stream of expected future earnings, discounted at a constant expected future risk-free rate. 
B)  future value of a constant stream of expected future earnings, discounted at a constant expected future discount rate. 
C)  present value of a constant stream of expected future earnings, discounted at a constant expected future risk-free rate. 
D)  present value of a constant stream of expected future earnings, discounted at a constant expected future discount rate.

Question 4

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

Accepted Answer

A)  decreasing competition that drives the firm's ROCE down 
B)  increasing systematic risk that increases the firm's equity cost of capital over time 
C)  a loss of competitive advantage through changes in technology or other factors 
D)  retaining earnings or issuing equity capital and deploying the capital in activities that generate ROCE levels that are lower than current levels 
A)  decreasing competition that drives the firm's ROCE down 
B)  increasing systematic risk that increases the firm's equity cost of capital over time 
C)  a loss of competitive advantage through changes in technology or other factors 
D)  retaining earnings or issuing equity capital and deploying the capital in activities that generate ROCE levels that are lower than current levels

Question 5

One problem with the price-earnings ratio 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)  it is 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)  it is based on analysts' expectations.

Question 6

A firm's value-to-book and market-to-book ratios may differ from one for a number of reasons. Discuss how a successful, internally funded research and development program would create a situation where the value-to-book and market-to-book ratios differ from one another.

Accepted Answer

Because research and development activit

Question 7

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

Accepted Answer

A)  Earnings per share 
B)  Dividend yield 
C)  Price/earnings ratio 
D)  Book value per share 
A)  Earnings per share 
B)  Dividend yield 
C)  Price/earnings ratio 
D)  Book value per share

Question 8

In research examining market efficiency, Bernard and Thomas examined quarterly earnings announcements. Discuss how Bernard and Thomas test the issue of market efficiency and the results of their research.

Accepted Answer

Bernard and Thomas examined market effic

Question 9

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

Accepted Answer

A)  that is underpriced given earnings and expected earnings growth. 
B)  that is low relative to the company's growth prospects. 
C)  that is high relative to the company's growth prospects. 
D)  that is overvalued. 
A)  that is underpriced given earnings and expected earnings growth. 
B)  that is low relative to the company's growth prospects. 
C)  that is high relative to the company's growth prospects. 
D)  that is overvalued.

Question 10

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 11

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

Accepted Answer

expected f

Question 12

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

Accepted Answer

The answer of The theoretical PE model does not work...

Question 13

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 14

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.

Accepted Answer

risk-neutr

Question 15

The use of P/E ratios in valuation can result in measurement bias. What two items can result in measurement error and why?

Accepted Answer

1.,1.,Growth - Simple P/E ratios do not

In the value-to-book model growth adds value to shareholders only if the growth is ________________________________________.

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

Strictly speaking, the price-earnings ratio assumes that firm value is the:

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

One problem with the price-earnings ratio commonly reported is that:

A firm's value-to-book and market-to-book ratios may differ from one for a number of reasons. Discuss how a successful, internally funded research and development program would create a situation where the value-to-book and market-to-book ratios differ from one another.

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

In research examining market efficiency, Bernard and Thomas examined quarterly earnings announcements. Discuss how Bernard and Thomas test the issue of market efficiency and the results of their research.

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

Valuation using market multiples captures:

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

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

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 :

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.

The use of P/E ratios in valuation can result in measurement bias. What two items can result in measurement error and why?

Overview of Financial Reporting, Financial Statement Analysis, and Valuation

Asset and Liability Valuation and Income Recognition

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

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Exam 14: Valuation: Market-Based Approaches

In the value-to-book model growth adds value to shareholders only if the growth is ________________________________________.

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

Strictly speaking, the price-earnings ratio assumes that firm value is the:

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

One problem with the price-earnings ratio commonly reported is that:

A firm's value-to-book and market-to-book ratios may differ from one for a number of reasons. Discuss how a successful, internally funded research and development program would create a situation where the value-to-book and market-to-book ratios differ from one another.

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

In research examining market efficiency, Bernard and Thomas examined quarterly earnings announcements. Discuss how Bernard and Thomas test the issue of market efficiency and the results of their research.

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

Valuation using market multiples captures:

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

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

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 :

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.

The use of P/E ratios in valuation can result in measurement bias. What two items can result in measurement error and why?

Overview of Financial Reporting, Financial Statement Analysis, and Valuation

Asset and Liability Valuation and Income Recognition

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