Question 1

If the stock prices follow a random walk, successive stock prices are not related.

Accepted Answer

A) True 
 B)False  False

Question 2

Other things equal, a firm's sustainable growth rate could increase as a result of:

Accepted Answer

A)  increasing the plowback ratio. 
B)  increasing the payout ratio. 
C)  decreasing the return on equity. 
D) increasing total assets. 
A)  increasing the plowback ratio. 
B)  increasing the payout ratio. 
C)  decreasing the return on equity. 
D) increasing total assets. A

Question 3

Wilt's has earnings per share of $2.98 and dividends per share of $.35. What is the firm's sustainable rate of growth if its return on assets is 14.6% and its return on equity is 18.2%?

Accepted Answer

A)  2.14% 
B)  1.71% 
C)  12.89% 
D) 16.06% 
A)  2.14% 
B)  1.71% 
C)  12.89% 
D) 16.06% D

Question 4

A firm's liquidation value is the amount:

Accepted Answer

A)  necessary to repurchase all outstanding shares of common stock. 
B)  realized from selling all assets and paying off all creditors. 
C)  a purchaser would pay to acquire all of the firm's assets. 
D) shown on the balance sheet as total owners' equity. 
A)  necessary to repurchase all outstanding shares of common stock. 
B)  realized from selling all assets and paying off all creditors. 
C)  a purchaser would pay to acquire all of the firm's assets. 
D) shown on the balance sheet as total owners' equity.

Question 5

What situation does a financial analyst face when there are many talented and competitive fundamental analysts?

Accepted Answer

Fundamental analysts are paid to uncover

Question 6

Which of the following is least likely to contribute to going concern value?

Accepted Answer

A)  High liquidation value 
B)  Extra earning power 
C)  Future investment opportunities 
D) Intangible assets 
A)  High liquidation value 
B)  Extra earning power 
C)  Future investment opportunities 
D) Intangible assets

Question 7

Technical analysts would be more likely than other investors to index their portfolios.

Accepted Answer

A) True 
 B)False

Question 8

Technical analysts have no effect on the efficiency of the stock market.

Accepted Answer

A) True 
 B)False

Question 9

If it proves possible to make abnormal profits based on information regarding past stock prices, then the market is:

Accepted Answer

A)  weak-form efficient. 
B)  not weak-form efficient. 
C)  semistrong-form efficient. 
D) strong-form efficient. 
A)  weak-form efficient. 
B)  not weak-form efficient. 
C)  semistrong-form efficient. 
D) strong-form efficient.

Question 10

Market value, unlike book value and liquidation value, treats the firm as a going concern.

Accepted Answer

A) True 
 B)False

Question 11

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

Accepted Answer

A) True 
 B)False

Question 12

As a result of its IPO, Facebook received:

Accepted Answer

A)  less than half of its true value. 
B)  almost double its true value. 
C)  about 75% of its actual value. 
D) about the maximum value that it could. 
A)  less than half of its true value. 
B)  almost double its true value. 
C)  about 75% of its actual value. 
D) about the maximum value that it could.

Question 13

When new information becomes available in the market, evidence generally suggests that:

Accepted Answer

A)  insiders will be the only investors to gain. 
B)  it takes at least ten trading days for stock prices to adjust. 
C)  stock prices will adjust to the information rapidly. 
D) transaction costs will erase any benefit of trading on the information. 
A)  insiders will be the only investors to gain. 
B)  it takes at least ten trading days for stock prices to adjust. 
C)  stock prices will adjust to the information rapidly. 
D) transaction costs will erase any benefit of trading on the information.

Question 14

With respect to the notion that stock prices follow a random walk, several researchers have concluded that:

Accepted Answer

A)  stock prices reflect a majority of available information about the firm. 
B)  successive price changes are predictable. 
C)  past stock price changes provide little useful information about current stock prices. 
D) stock prices always rise excessively in January. 
A)  stock prices reflect a majority of available information about the firm. 
B)  successive price changes are predictable. 
C)  past stock price changes provide little useful information about current stock prices. 
D) stock prices always rise excessively in January.

Question 15

Explain why the market value of common stock often differs from its liquidation value or its book value.

Accepted Answer

A firm's liquidation value represents th

Question 16

How much of a stock's $30 price is reflected in PVGO if it expects to earn $4 per share, has an expected dividend of $2.50, and a required return of 20%?

Accepted Answer

A)  $0 
B)  $6 
C)  $8 
D) $10 
A)  $0 
B)  $6 
C)  $8 
D) $10

Question 17

How does competition among investors lead to efficient markets?

Accepted Answer

The search for information and insightfu

Question 18

What is the plowback ratio for a firm that has earnings per share of $2.68 and pays out $1.75 per share in dividends?

Accepted Answer

A)  28.20% 
B)  34.70% 
C)  66.67% 
D) 71.80% 
A)  28.20% 
B)  34.70% 
C)  66.67% 
D) 71.80%

Question 19

A stock paying $5 in annual dividends currently sells for $80 and has an expected return of 14%. What might investors expect to pay for the stock one year from now?

Accepted Answer

A)  $82.20 
B)  $86.20 
C)  $87.20 
D) $91.20 
A)  $82.20 
B)  $86.20 
C)  $87.20 
D) $91.20

Question 20

The dividend yield of a stock is much like the current yield of a bond. Both ignore prospective capital gains or losses.

Accepted Answer

A) True 
 B)False

Exam 7: Valuing Stocks

If the stock prices follow a random walk, successive stock prices are not related.

Other things equal, a firm's sustainable growth rate could increase as a result of:

Wilt's has earnings per share of $2.98 and dividends per share of $.35. What is the firm's sustainable rate of growth if its return on assets is 14.6% and its return on equity is 18.2%?

A firm's liquidation value is the amount:

What situation does a financial analyst face when there are many talented and competitive fundamental analysts?

Which of the following is least likely to contribute to going concern value?

Technical analysts would be more likely than other investors to index their portfolios.

Technical analysts have no effect on the efficiency of the stock market.

If it proves possible to make abnormal profits based on information regarding past stock prices, then the market is:

Market value, unlike book value and liquidation value, treats the firm as a going concern.

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

As a result of its IPO, Facebook received:

When new information becomes available in the market, evidence generally suggests that:

With respect to the notion that stock prices follow a random walk, several researchers have concluded that:

Explain why the market value of common stock often differs from its liquidation value or its book value.

How much of a stock's $30 price is reflected in PVGO if it expects to earn $4 per share, has an expected dividend of $2.50, and a required return of 20%?

How does competition among investors lead to efficient markets?

What is the plowback ratio for a firm that has earnings per share of $2.68 and pays out $1.75 per share in dividends?

A stock paying $5 in annual dividends currently sells for $80 and has an expected return of 14%. What might investors expect to pay for the stock one year from now?

The dividend yield of a stock is much like the current yield of a bond. Both ignore prospective capital gains or losses.

Goals and Governance of the Corporation

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

How Corporations Raise Venture Capital and Issue Securities

Debt Policy

Payout Policy

Long-Term Financial Planning

Short-Term Financial Planning

Working Capital Management

Mergers, Acquisitions, and Corporate Control

International Financial Management

Options

Risk Management

Filters