Question 1

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

Accepted Answer

abnormally

Question 2

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

Accepted Answer

A)  future actual income. 
B)  future residual income. 
C)  past actual income. 
D)  past residual income. 
A)  future actual income. 
B)  future residual income. 
C)  past actual income. 
D)  past residual income.

Question 3

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

Accepted Answer

A)  ROCE equals ROA 
B)  ROCE equals RE 
C)  ROCE is greater than RE 
D)  ROCE is less than RE 
A)  ROCE equals ROA 
B)  ROCE equals RE 
C)  ROCE is greater than RE 
D)  ROCE is less than RE

Question 4

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

Accepted Answer

A)  when investors expect that the firm's strategy enables it to generate and sustain greater profitability for a given cost of equity capital 
B)  when the firm earns the same profitability but with lower risk and, therefore, a lower cost of equity capital 
C)  a firm's business model that enables it to generate faster growth in earnings provided the growth creates positive residual ROCE 
D)  a firm's business model that results in slower growth in earnings and this creates negative residual ROCE 
A)  when investors expect that the firm's strategy enables it to generate and sustain greater profitability for a given cost of equity capital 
B)  when the firm earns the same profitability but with lower risk and, therefore, a lower cost of equity capital 
C)  a firm's business model that enables it to generate faster growth in earnings provided the growth creates positive residual ROCE 
D)  a firm's business model that results in slower growth in earnings and this creates negative residual ROCE

Question 5

Investors have invested $30,000 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 $7,000 the first year,$6,000 the second year,$5,750 the third year,and $6,442 each year after the third year.The company's current stock price is $18 per share.Assuming that the company has 4,300 shares outstanding and the risk-free rate of interest is 7%,calculate the price differential for this company.

Accepted Answer

The answer of Investors have invested $30,000 in common equity...

Question 6

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 7

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

Accepted Answer

The price differential is the amount the

Question 8

Use the following information to answer the requirements:
 $\begin{array}{|c|r|r} 
& \text { Company X } & \text { Company Y } \
\hline \text { Reported EPS } & \$ 15.00 & \$ 15.00 \
\hline \text { EPS decomposed: } & & \
\hline \text { Permanent } & 75 \% & 65 \% \
\hline \text { Transitory } & 20 \% & 25 \% \
\hline \text { Value-irrelevant } & 5 \% & 10 \%
\end{array}$
 
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
 11ea427f_241a_d770_8d65_d757d05addb6

Question 9

Analysts use the PEG ratio to assess share price relative to earnings and _________________________________________________________________.

Accepted Answer

expected f

Question 10

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 11

The risk of the firm increases the _____________________________________________.

Accepted Answer

equity cos

Question 12

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 13

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

Accepted Answer

risk,cost

Question 14

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

Accepted Answer

The answer of The value-to-book ratio reflects an analyst's expectation...

Question 15

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 16

Market multiples capture ____________________ valuation per dollar of book value or per dollar of earnings.

Accepted Answer

The answer of Market multiples capture ____________________ valuation per dollar...

Question 17

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 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 market price of a share of common equity reflects the _____________________________________________ of all of the market participants following that particular stock.

Accepted Answer

aggregated

Question 20

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

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

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

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

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

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

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

Analysts use the PEG ratio to assess share price relative to earnings and _________________________________________________________________.

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

The risk of the firm increases the _____________________________________________.

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

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

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

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?

Market multiples capture ____________________ valuation per dollar of book value or per dollar of earnings.

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

Valuation using market multiples captures

The market price of a share of common equity reflects the _____________________________________________ of all of the market participants following that particular stock.

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

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

Accounting Quality

Financing Activities

Investing Activities

Operating Activities

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

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

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

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

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

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

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

Analysts use the PEG ratio to assess share price relative to earnings and _________________________________________________________________.

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

The risk of the firm increases the _____________________________________________.

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

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

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

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?

Market multiples capture ____________________ valuation per dollar of book value or per dollar of earnings.

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

Valuation using market multiples captures

The market price of a share of common equity reflects the _____________________________________________ of all of the market participants following that particular stock.

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

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

Accounting Quality

Financing Activities

Investing Activities

Operating Activities

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