Question 1

The dividend discount model does not hold for investors who have a preference for capital gains.

Accepted Answer

A) True 
 B)False

Question 2

Firms with valuable intangible assets are more likely to show a(n):

Accepted Answer

A)  excess of book value over market value of equity. 
B)  high going-concern value. 
C)  low liquidation value. 
D)  low P/E ratio. 
A)  excess of book value over market value of equity. 
B)  high going-concern value. 
C)  low liquidation value. 
D)  low P/E ratio.

Question 3

What is the return on equity for a firm that has a constant dividend growth rate of 7 percent and a dividend payout ratio of 60 percent?

Accepted Answer

A)  2.80 percent 
B)  4.20 percent 
C)  11.67 percent 
D)  17.50 percent 
A)  2.80 percent 
B)  4.20 percent 
C)  11.67 percent 
D)  17.50 percent

Question 4

A fundamental analyst:

Accepted Answer

A)  relies upon the same information as the technical analyst, but believes in the random walk. 
B)  studies a firm's financial statements to determine pricing inefficiencies. 
C)  believes that the market is strong-form efficient. 
D)  performs an unnecessary function, since markets are efficient. 
A)  relies upon the same information as the technical analyst, but believes in the random walk. 
B)  studies a firm's financial statements to determine pricing inefficiencies. 
C)  believes that the market is strong-form efficient. 
D)  performs an unnecessary function, since markets are efficient.

Question 5

Fundamental analysts attempt to get rich by identifying patterns in stock prices.

Accepted Answer

A) True 
 B)False

Question 6

If the market is efficient,stock prices should only be expected to react to new information that is released.

Accepted Answer

A) True 
 B)False

Question 7

The terminal value of a share of stock:

Accepted Answer

A)  is similar to the maturity value of a bond. 
B)  refers to the share value at the end of the investor's holding period. 
C)  is the value received by investors upon liquidation of the firm. 
D)  is the price for shares traded through a dealers' market. 
A)  is similar to the maturity value of a bond. 
B)  refers to the share value at the end of the investor's holding period. 
C)  is the value received by investors upon liquidation of the firm. 
D)  is the price for shares traded through a dealers' market.

Question 8

What would be the expected price of a stock when dividends are expected to grow at a 25 percent rate for three years,and then grow at a constant rate of 5 percent,if the stock's required return is 13 percent and next year's dividend will be $4.00?

Accepted Answer

A)  $61.60 
B)  $62.08 
C)  $68.64 
D)  $79.44 
A)  $61.60 
B)  $62.08 
C)  $68.64 
D)  $79.44

Question 9

Common stock can be valued using the perpetuity valuation formula if the:

Accepted Answer

A)  discount rate is expected to remain constant. 
B)  dividends are not expected to grow. 
C)  growth rate in dividends is not constant. 
D)  investor does not intend to sell the stock. 
A)  discount rate is expected to remain constant. 
B)  dividends are not expected to grow. 
C)  growth rate in dividends is not constant. 
D)  investor does not intend to sell the stock.

Question 10

What is the minimum amount that shareholders should expect to receive in the event of a complete corporate liquidation?

Accepted Answer

A)  market value of equity 
B)  book value of equity 
C)  zero 
D)  shareholders may be required to pay to be liquidated 
A)  market value of equity 
B)  book value of equity 
C)  zero 
D)  shareholders may be required to pay to be liquidated

Question 11

The dividend discount model states that today's stock price equals the present value of all expected future dividends.

Accepted Answer

A) True 
 B)False

Question 12

The study of published financial information on a company in order to make investment decisions is known as:

Accepted Answer

A)  technical analysis. 
B)  fundamental analysis. 
C)  efficiency analysis. 
D)  random pricing analysis. 
A)  technical analysis. 
B)  fundamental analysis. 
C)  efficiency analysis. 
D)  random pricing analysis.

Question 13

What is the value of the expected dividend per share for a stock that has a required return of 16 percent,a price of $45,and a constant growth rate of 12 percent?

Accepted Answer

A)  $1.80 
B)  $3.60 
C)  $4.50 
D)  $7.20 
A)  $1.80 
B)  $3.60 
C)  $4.50 
D)  $7.20

Question 14

Which of the following describes a seasoned offering?

Accepted Answer

A)  an IPO of common stock for a well-known firm 
B)  an IPO that is offered during the best buying season 
C)  an additional equity issue from a publicly traded firm 
D)  any shares traded in the secondary market are seasoned offerings 
A)  an IPO of common stock for a well-known firm 
B)  an IPO that is offered during the best buying season 
C)  an additional equity issue from a publicly traded firm 
D)  any shares traded in the secondary market are seasoned offerings

Question 15

Explain the relationship between earnings-price ratio,required rate of return,and present value of growth opportunities.

Accepted Answer

The inverse of the price-earnings ratio

Question 16

Depreciation is:

Accepted Answer

A)  Not adjusted for inflation. 
B)  Is adjusted for inflation. 
C)  Is adjusted using time value of money. 
D)  Is adjusted for inflation and time value of money. 
A)  Not adjusted for inflation. 
B)  Is adjusted for inflation. 
C)  Is adjusted using time value of money. 
D)  Is adjusted for inflation and time value of money.

Question 17

What rate of return is expected from a stock that sells for $30 per share,pays $1.50 annually in dividends,and is expected to sell for $33 per share in one year?

Accepted Answer

A)  5.00 percent 
B)  10.00 percent 
C)  14.09 percent 
D)  15.00 percent 
A)  5.00 percent 
B)  10.00 percent 
C)  14.09 percent 
D)  15.00 percent

Question 18

According to the dividend discount model,a stock's price today depends on the investor's horizon for holding the stock.

Accepted Answer

A) True 
 B)False

Question 19

An excess of market value over the book value of equity can be attributed to going concern value.

Accepted Answer

A) True 
 B)False

Question 20

Sustainable growth rates can be estimated by multiplying a firm's ROE by its dividend payout ratio.

Accepted Answer

A) True 
 B)False

Exam 7: Valuing Stocks

The dividend discount model does not hold for investors who have a preference for capital gains.

Firms with valuable intangible assets are more likely to show a(n):

What is the return on equity for a firm that has a constant dividend growth rate of 7 percent and a dividend payout ratio of 60 percent?

A fundamental analyst:

Fundamental analysts attempt to get rich by identifying patterns in stock prices.

If the market is efficient,stock prices should only be expected to react to new information that is released.

The terminal value of a share of stock:

What would be the expected price of a stock when dividends are expected to grow at a 25 percent rate for three years,and then grow at a constant rate of 5 percent,if the stock's required return is 13 percent and next year's dividend will be $4.00?

Common stock can be valued using the perpetuity valuation formula if the:

What is the minimum amount that shareholders should expect to receive in the event of a complete corporate liquidation?

The dividend discount model states that today's stock price equals the present value of all expected future dividends.

The study of published financial information on a company in order to make investment decisions is known as:

What is the value of the expected dividend per share for a stock that has a required return of 16 percent,a price of $45,and a constant growth rate of 12 percent?

Which of the following describes a seasoned offering?

Explain the relationship between earnings-price ratio,required rate of return,and present value of growth opportunities.

Depreciation is:

What rate of return is expected from a stock that sells for $30 per share,pays $1.50 annually in dividends,and is expected to sell for $33 per share in one year?

According to the dividend discount model,a stock's price today depends on the investor's horizon for holding the stock.

An excess of market value over the book value of equity can be attributed to going concern value.

Sustainable growth rates can be estimated by multiplying a firm's ROE by its dividend payout ratio.

Goals and Governance of the Firm

Financial Markets and Institutions

Accounting and Finance

Measuring Corporate Performance

The Time Value of Money

Valuing Bonds

Net Present Value and Other Investment Criteria

Using Discounted Cash Flow Analysis to Make Investment Decisions

Project Analysis

Introduction to Risk, Return, and the Opportunity Cost of Capital

Risk, Return, and Capital Budgeting

The Weighted-Average Cost of Capital and Company Valuation

Introduction to Corporate Financing and Governance

Venture Capital, IPOs, and Seasoned Offerings

Debt and Payout Policy

Leasing

Payout Policy

Long-Term Financial Planning

Short-Term Financial Planning

Cash and Inventory Management

Credit Management and Collection

Mergers, Acquisitions, and Corporate Control

International Financial Management

Options

Risk Management

Filters