Question 1

Which of the following is not a reason why price-earnings ratios would differ across firms?

Accepted Answer

A)  Risk 
B)  Profitability 
C)  Growth 
D)  Operating leverage 
A)  Risk 
B)  Profitability 
C)  Growth 
D)  Operating leverage

Question 2

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

Accepted Answer

A)  recognizing unrealized gains on assets 
B)  a loss of competitive advantage through changes in technology or other factors 
C)  earning a high ROCE (above the equity cost of capital) on off-balance-sheet R&D assets 
D)  earning a high ROCE (above the equity cost of capital) on off-balance-sheet intangible assets (such as brand equity) over time 
A)  recognizing unrealized gains on assets 
B)  a loss of competitive advantage through changes in technology or other factors 
C)  earning a high ROCE (above the equity cost of capital) on off-balance-sheet R&D assets 
D)  earning a high ROCE (above the equity cost of capital) on off-balance-sheet intangible assets (such as brand equity) over time

Question 3

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.

Question 4

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 5

What is the value of reverse engineering stock prices? How does the process work?

Accepted Answer

The process allows the analyst to infer

Question 6

To estimate security's risk-neutral value we can use the _____________________________________________ and risk-free rates of return.

Accepted Answer

residual i

Question 7

When a company has a high market to book ratio this could be a result of the company having__________________________________________________.

Accepted Answer

off-balanc

Question 8

Wolverwine Company's current stock price is $55 per share and the company's trailing earnings per share were $2.10.Given that analysts are forecasting growth of 12% for Wolverwine,what is the company's PEG ratio?

Accepted Answer

A)  21.2 
B)  2.18 
C)  2.97 
D)  1.52 
A)  21.2 
B)  2.18 
C)  2.97 
D)  1.52

Question 9

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

Accepted Answer

Book value is based on a mixtu

Question 10

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

Accepted Answer

future res

Question 11

A company is expected to generate $175,000 in earnings next period and requires a 20 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)  $875,000 
A)  $781,250 
B)  $1,250,000 
C)  $2,000,000 
D)  $875,000

Question 12

If the market price of a share of stock is based on the expectations of all of the market participants and the trading volume in that stock.What would happen if the companies reputation would be damaged by a scandal or defective product that caused personal injury or death

Accepted Answer

The market participants probably would n

Question 13

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.

Accepted Answer

Because research and development activit

Question 14

Studies have shown that 50-70% of the variability in PE ratios across firms comes from and .
____________________________
____________________________

Accepted Answer

risk,growt

Question 15

What does a price differential measure? How does a price differential relate to risk?

Accepted Answer

Conceptually,price differentials reflect

Question 16

Assume an analyst is evaluating a firm with $1,000 of book value of common equity and a cost of equity capital equal to 12 percent.Assume that the analyst forecasts that the firm will earn ROCE of 18 percent until year 2015,when the firm will start earning ROCE equal to 12 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 17

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 18

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 19

Residual income is defined as:

Accepted Answer

A)  Difference between expected comprehensive income and required earnings by the firm 
B)  Difference between comprehensive income and retained earnings 
C)  Difference between comprehensive income and the companies book value. 
D)  The addition of comprehensive income to net income for the year. 
A)  Difference between expected comprehensive income and required earnings by the firm 
B)  Difference between comprehensive income and retained earnings 
C)  Difference between comprehensive income and the companies book value. 
D)  The addition of comprehensive income to net income for the year.

Question 20

A company with a PEG ratio of lessthan one would be interpreted as having a stock price that is low relative to ______________________________.

Accepted Answer

The answer of A company with a PEG ratio of...

Which of the following is not a reason why price-earnings ratios would differ across firms?

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

The market price of a share of common equity reflects

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

What is the value of reverse engineering stock prices? How does the process work?

To estimate security's risk-neutral value we can use the _____________________________________________ and risk-free rates of return.

When a company has a high market to book ratio this could be a result of the company having__________________________________________________.

Wolverwine Company's current stock price is $55 per share and the company's trailing earnings per share were $2.10.Given that analysts are forecasting growth of 12% for Wolverwine,what is the company's PEG ratio?

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

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

A company is expected to generate $175,000 in earnings next period and requires a 20 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?

If the market price of a share of stock is based on the expectations of all of the market participants and the trading volume in that stock.What would happen if the companies reputation would be damaged by a scandal or defective product that caused personal injury or death

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.

Studies have shown that 50-70% of the variability in PE ratios across firms comes from and .

What does a price differential measure? How does a price differential relate to risk?

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

Residual income is defined as:

A company with a PEG ratio of lessthan one would be interpreted as having a stock price that is low relative to ______________________________.

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

Which of the following is not a reason why price-earnings ratios would differ across firms?

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

The market price of a share of common equity reflects

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

What is the value of reverse engineering stock prices? How does the process work?

To estimate security's risk-neutral value we can use the _____________________________________________ and risk-free rates of return.

When a company has a high market to book ratio this could be a result of the company having__________________________________________________.

Wolverwine Company's current stock price is $55 per share and the company's trailing earnings per share were $2.10.Given that analysts are forecasting growth of 12% for Wolverwine,what is the company's PEG ratio?

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

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

A company is expected to generate $175,000 in earnings next period and requires a 20 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?

If the market price of a share of stock is based on the expectations of all of the market participants and the trading volume in that stock.What would happen if the companies reputation would be damaged by a scandal or defective product that caused personal injury or death

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.

Studies have shown that 50-70% of the variability in PE ratios across firms comes from and . ____________________________ ____________________________

What does a price differential measure? How does a price differential relate to risk?

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

Residual income is defined as:

A company with a PEG ratio of lessthan one would be interpreted as having a stock price that is low relative to ______________________________.

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

Studies have shown that 50-70% of the variability in PE ratios across firms comes from and .