Question 1

Some analysts believe that the P/E ratio of a company that is fairly valued will equal its expected growth rate.

Accepted Answer

A) True 
 B)False

Question 2

Low P/E stocks are generally associated with:

Accepted Answer

A) mature companies. 
B) cyclical companies. 
C) young fast-growing companies. 
D) growth companies. 
A) mature companies. 
B) cyclical companies. 
C) young fast-growing companies. 
D) growth companies.

Question 3

Which of the following would increase a firm's current calculated FCFF?

Accepted Answer

A) An increase in net borrowings 
B) A decrease in net borrowings 
C) An increase in fixed capital investment 
D) A decrease in fixed capital investment 
A) An increase in net borrowings 
B) A decrease in net borrowings 
C) An increase in fixed capital investment 
D) A decrease in fixed capital investment

Question 4

When analyzing stocks,the variable of interest to most investors is:

Accepted Answer

A) beta. 
B) profit margins. 
C) dividend yield. 
D) earnings per share. 
A) beta. 
B) profit margins. 
C) dividend yield. 
D) earnings per share.

Question 5

The generally accepted accounting principles (GAAP)require that EPS be calculated using a:

Accepted Answer

A) conservative treatment. 
B) liberal treatment. 
C) standard set of rules developed by the accounting profession. 
D) standard set of rules developed by the SEC. 
A) conservative treatment. 
B) liberal treatment. 
C) standard set of rules developed by the accounting profession. 
D) standard set of rules developed by the SEC.

Question 6

A positive earnings surprise occurs when the forecasted earnings are greater than the actual earnings of a company.

Accepted Answer

A) True 
 B)False

Question 7

EBITDA,sometimes called operating profit,is often emphasized by biotech companies because of their lack of real profitability.

Accepted Answer

A) True 
 B)False

Question 8

Which of the following is shown on the balance sheet on a lower of cost or market value basis?

Accepted Answer

A) Cash 
B) Stockholders' equity 
C) Marketable securities 
D) Treasury stock 
A) Cash 
B) Stockholders' equity 
C) Marketable securities 
D) Treasury stock

Question 9

Since extraordinary items affecting earnings are typically non-recurring,investors should disregard their impact on earnings when evaluating the stock.

Accepted Answer

A) True 
 B)False

Question 10

What is the relationship of the Financial Accounting Standards Board and the Securities and Exchange Commission?

Accepted Answer

The FASB and the SEC are separate organi

Question 11

One way to calculate EPS is:

Accepted Answer

A) ROA x book value per share. 
B) ROE x book value per share. 
C) ROA ÷ book value per share. 
D) ROE ÷ book value per share. 
A) ROA x book value per share. 
B) ROE x book value per share. 
C) ROA ÷ book value per share. 
D) ROE ÷ book value per share.

Question 12

Which of the following is not true regarding earnings estimates?

Accepted Answer

A) Some companies provide guidance on forthcoming earnings announcements. 
B) The guidance number plays a major role in the consensus estimate. 
C) The variance of actual reported earnings from the consensus had typically constituted the "whisper" forecast. 
D) All of the above are true. 
A) Some companies provide guidance on forthcoming earnings announcements. 
B) The guidance number plays a major role in the consensus estimate. 
C) The variance of actual reported earnings from the consensus had typically constituted the "whisper" forecast. 
D) All of the above are true.

Question 13

Other things equal,if the:

Accepted Answer

A) expected growth rate increases,the P/E ratio will decline. 
B) risk-free rate rises,the required rate will decline. 
C) required rate rises,the P/E ratio will decline. 
D) risk premium rises,the required rate will decline. 
A) expected growth rate increases,the P/E ratio will decline. 
B) risk-free rate rises,the required rate will decline. 
C) required rate rises,the P/E ratio will decline. 
D) risk premium rises,the required rate will decline.

Question 14

Other things being equal,as k rises,the P/E ratio will also rise.

Accepted Answer

A) True 
 B)False

Question 15

How could unexpected inflation affect the P/E ratio?

Accepted Answer

Unexpected inflation would inc

Question 16

Investors interested in buying stocks that report bad news and suffer a sharp decline should buy the first day bad news is reported.

Accepted Answer

A) True 
 B)False

Question 17

Which of the following statements regarding retained earnings is not true?

Accepted Answer

A) It is part of stockholders' equity. 
B) It represents spendable funds for a company. 
C) It designates that part of previous earnings not paid out as dividends. 
D) It is irrelevant in security valuation. 
A) It is part of stockholders' equity. 
B) It represents spendable funds for a company. 
C) It designates that part of previous earnings not paid out as dividends. 
D) It is irrelevant in security valuation.

Question 18

The two components of ROE are:

Accepted Answer

A) ROA and book value per share. 
B) ROA and leverage. 
C) ROA and profit margin. 
D) leverage and book value. 
A) ROA and book value per share. 
B) ROA and leverage. 
C) ROA and profit margin. 
D) leverage and book value.

Question 19

Other things equal,if the:

Accepted Answer

A) required rate of return increases,the P/E ratio will rise. 
B) risk premium increases,the P/E ratio will rise. 
C) risk-free rate rises,the P/E ratio will fall. 
D) dividend payout increases,the P/E ratio will fall. 
A) required rate of return increases,the P/E ratio will rise. 
B) risk premium increases,the P/E ratio will rise. 
C) risk-free rate rises,the P/E ratio will fall. 
D) dividend payout increases,the P/E ratio will fall.

Question 20

Can an investor that wants to use the approach of projected earnings and P/Es find help in Value Line?

Accepted Answer

Yes.In fact Value Li

Exam 15: Company Analysis

Some analysts believe that the P/E ratio of a company that is fairly valued will equal its expected growth rate.

Low P/E stocks are generally associated with:

Which of the following would increase a firm's current calculated FCFF?

When analyzing stocks,the variable of interest to most investors is:

The generally accepted accounting principles (GAAP)require that EPS be calculated using a:

A positive earnings surprise occurs when the forecasted earnings are greater than the actual earnings of a company.

EBITDA,sometimes called operating profit,is often emphasized by biotech companies because of their lack of real profitability.

Which of the following is shown on the balance sheet on a lower of cost or market value basis?

Since extraordinary items affecting earnings are typically non-recurring,investors should disregard their impact on earnings when evaluating the stock.

What is the relationship of the Financial Accounting Standards Board and the Securities and Exchange Commission?

One way to calculate EPS is:

Which of the following is not true regarding earnings estimates?

Other things equal,if the:

Other things being equal,as k rises,the P/E ratio will also rise.

How could unexpected inflation affect the P/E ratio?

Investors interested in buying stocks that report bad news and suffer a sharp decline should buy the first day bad news is reported.

Which of the following statements regarding retained earnings is not true?

The two components of ROE are:

Other things equal,if the:

Can an investor that wants to use the approach of projected earnings and P/Es find help in Value Line?

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Securities Markets and Market Indexes

How Securities Are Traded

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Common Stock Valuation

Common Stocks: Analysis and Strategy

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