Exam 10: Common Stock Valuation

Which measure relies on the cash flow remaining after capital expenditures and after interest and principal repayments on debt have been made?

Which of the following is not one of the steps in using discounted cash flow to value a company?

Tanex Inc.has a return on assets (ROA)of 12%,a return on equity (ROE)of 15%,and a dividend payout ratio of 60%.Based on the sustainable growth formula,Tanex's estimated growth is:

Historically,the average P/E for the S&P 500 is approximately 16.

Stephen used the dividend discount model to determine that the price of a stock should be $23.50.Stephen checks on the internet and finds the latest price quoted for the stock is $27.00.What should he do?

Carl is evaluating a stock that just paid a dividend of $2.00 per share.He expects this dividend to grow by 4% per year,and he has determined that 11% is the appropriate required return.What is the most he should pay for the stock?

The P/E ratio is one of the most widely used measures to assess the financial attractiveness of potential stock investments.

Which of the following is most likely to increase a company's P/E ratio?

Sara estimated the revenue per share for Firm A as $5.50 and estimated the appropriate P/B ratio,P/E ratio,and P/S ratio as 1.9,14.5,and 2.6,respectively.What is the estimated intrinsic value for Firm A?

When using the free cash flow to the firm (FCFF)model,which of the following should be used as the discount rate?

Many analysts prefer to use a relative valuation technique,such as comparing P/E ratios,because these techniques are more grounded in theory than the DCF approaches.

Technology stocks generally have P/E ratios that are higher than the market average.

The required return needed to discount a stock's future cash flows can be determined using the CAPM.

Sometimes analysts use other ratios such as price-to-book or price-to-sales ratio.Which of the following is a weakness of the use of these ratios?

Which of the following is not used in relative valuation comparisons?

Janice is evaluating a stock that currently pays a dividend of $0.25 per share.She expects this level of dividend to continue indefinitely,and she has determined that 5% is the appropriate required return for the stock.What is the most she should pay for the stock?

Which of the following is not a term used to describe the denominator in the discounted cash flow model?

The P/B ratio is considered relatively useful for firms with high levels of intangible assets.

What are two major approaches used to value stocks?

Which of the following increases the price an investor is willing to pay for stock?