Question 1

Companies value-to-book and market-to-book ratios may differ due to accounting reasons.An example of an accounting reason that would create a difference is

Accepted Answer

A)  accelerated methods of depreciation. 
B)  investments in successful research and development programs that are expensed according to conservative accounting principles. 
C)  using LIFO versus FIFO for inventory. 
D)  high operating leverage. 
A)  accelerated methods of depreciation. 
B)  investments in successful research and development programs that are expensed according to conservative accounting principles. 
C)  using LIFO versus FIFO for inventory. 
D)  high operating leverage. B

Question 2

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

Accepted Answer

residual income model

Question 3

Book value per share may not approximate market value per share because:

Accepted Answer

A)  Land may have substantially increased in value. 
B)  Market value reflects future potential earning power. 
C)  Investments may have a market value substantially above the original cost. 
D)  All of these are reasons why book value per share may not approximate market value per share. 
A)  Land may have substantially increased in value. 
B)  Market value reflects future potential earning power. 
C)  Investments may have a market value substantially above the original cost. 
D)  All of these are reasons why book value per share may not approximate market value per share. D

Question 4

The PEG ratio does not take into account differences in ____________________ and ________________________________________ across firms.

Accepted Answer

risk,cost of equity

Question 5

Which of the following ratios usually reflects investor's opinions of the future prospects for the firm?

Accepted Answer

A)  Earnings per share 
B)  Dividend yield 
C)  Price/earnings ratio 
D)  Book value per share 
A)  Earnings per share 
B)  Dividend yield 
C)  Price/earnings ratio 
D)  Book value per share

Question 6

Explain the analysts' role in making the capital markets efficient.

Accepted Answer

Analysts play a key role in making the c

Question 7

Wolverwine Company's current stock price is $45 per share and the company's trailing earnings per share were $2.12.Given that analysts are forecasting growth of 14% for Wolverwine,what is the company's PEG ratio?

Accepted Answer

A)  21.2 
B)  24.2 
C)  2.97 
D)  1.52 
A)  21.2 
B)  24.2 
C)  2.97 
D)  1.52

Question 8

Sometimes a high market-to-book ratio is a result of having __________________________________________________.

Accepted Answer

off-balanc

Question 9

The use of P/E ratios in valuation can result in measurement bias.What two items can result in measurement error and why?

Accepted Answer

1.Growth - Simple P/E ratios do not take

Question 10

Under the value-to-book model a firm in steady state equilibrium earning ROCE = RE will

Accepted Answer

A)  create additional shareholder wealth and be valued above book value. 
B)  maintain shareholder wealth and be valued at book value. 
C)  destroy shareholder wealth and be valued below book value. 
D)  be in a no-growth state. 
A)  create additional shareholder wealth and be valued above book value. 
B)  maintain shareholder wealth and be valued at book value. 
C)  destroy shareholder wealth and be valued below book value. 
D)  be in a no-growth state.

Question 11

Assume an analyst is evaluating a firm with $1,000 of book value of common equity and a cost of equity capital equal to 8 percent.Assume that the analyst forecasts that the firm will earn ROCE of 14 percent until year 2016,when the firm will start earning ROCE equal to 8 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 12

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

Accepted Answer

The process allows the analyst to infer

Question 13

Economics teaches that,in equilibrium,firms will earn a return equal to the ______________________________.

Accepted Answer

The answer of Economics teaches that,in equilibrium,firms will earn a...

Question 14

The price differential,or the amount by which the market has discounted share price for risk,is calculated by

Accepted Answer

A)  subtracting the book value from the residual income model book value calculated using the risk free rate. 
B)  subtracting the market price from the residual income model price calculated using the risk free rate. 
C)  multiplying the theoretical price-earnings ratio by the market price. 
D)  subtracting the residual income model price calculated using RE from the residual income model price calculated using the risk free rate. 
A)  subtracting the book value from the residual income model book value calculated using the risk free rate. 
B)  subtracting the market price from the residual income model price calculated using the risk free rate. 
C)  multiplying the theoretical price-earnings ratio by the market price. 
D)  subtracting the residual income model price calculated using RE from the residual income model price calculated using the risk free rate.

Question 15

Assuming that Ska's cost of equity capital is 14% and it expects to grow earnings at a rate of 8% per year,we would expect Ska's P/E ratio to be

Accepted Answer

A)  8 
B)  16.7 
C)  14 
D)  4.5 
A)  8 
B)  16.7 
C)  14 
D)  4.5

Question 16

The risk of the firm increases the _____________________________________________.

Accepted Answer

equity cos

Question 17

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 18

In the value-to-book model growth adds value to shareholders only if the growth is ________________________________________.

Accepted Answer

abnormally

Question 19

Discuss how risk and profitability factors cause differences in price-earnings ratios across firms.

Accepted Answer

Risk will affect a company's cost of equ

Question 20

Strictly speaking,the price-earnings ratio assumes that firm value is the

Accepted Answer

A)  future value of a constant stream of expected future earnings, discounted at a constant expected future risk-free rate. 
B)  future value of a constant stream of expected future earnings, discounted at a constant expected future discount rate. 
C)  present value of a constant stream of expected future earnings, discounted at a constant expected future risk-free rate. 
D)  present value of a constant stream of expected future earnings, discounted at a constant expected future discount rate. 
A)  future value of a constant stream of expected future earnings, discounted at a constant expected future risk-free rate. 
B)  future value of a constant stream of expected future earnings, discounted at a constant expected future discount rate. 
C)  present value of a constant stream of expected future earnings, discounted at a constant expected future risk-free rate. 
D)  present value of a constant stream of expected future earnings, discounted at a constant expected future discount rate.

Companies value-to-book and market-to-book ratios may differ due to accounting reasons.An example of an accounting reason that would create a difference is

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

Book value per share may not approximate market value per share because:

The PEG ratio does not take into account differences in and ____________________ across firms.

Which of the following ratios usually reflects investor's opinions of the future prospects for the firm?

Explain the analysts' role in making the capital markets efficient.

Wolverwine Company's current stock price is $45 per share and the company's trailing earnings per share were $2.12.Given that analysts are forecasting growth of 14% for Wolverwine,what is the company's PEG ratio?

Sometimes a high market-to-book ratio is a result of having __________________________________________________.

The use of P/E ratios in valuation can result in measurement bias.What two items can result in measurement error and why?

Under the value-to-book model a firm in steady state equilibrium earning ROCE = R_E will

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

Economics teaches that,in equilibrium,firms will earn a return equal to the ______________________________.

The price differential,or the amount by which the market has discounted share price for risk,is calculated by

Assuming that Ska's cost of equity capital is 14% and it expects to grow earnings at a rate of 8% per year,we would expect Ska's P/E ratio to be

The risk of the firm increases the _____________________________________________.

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

In the value-to-book model growth adds value to shareholders only if the growth is ________________________________________.

Discuss how risk and profitability factors cause differences in price-earnings ratios across firms.

Strictly speaking,the price-earnings ratio assumes that firm value is the

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

Financing Activities

Investing Activities

Operating Activities

Accounting Quality

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

Companies value-to-book and market-to-book ratios may differ due to accounting reasons.An example of an accounting reason that would create a difference is

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

Book value per share may not approximate market value per share because:

The PEG ratio does not take into account differences in ____________________ and ________________________________________ across firms.

Which of the following ratios usually reflects investor's opinions of the future prospects for the firm?

Explain the analysts' role in making the capital markets efficient.

Wolverwine Company's current stock price is $45 per share and the company's trailing earnings per share were $2.12.Given that analysts are forecasting growth of 14% for Wolverwine,what is the company's PEG ratio?

Sometimes a high market-to-book ratio is a result of having __________________________________________________.

The use of P/E ratios in valuation can result in measurement bias.What two items can result in measurement error and why?

Under the value-to-book model a firm in steady state equilibrium earning ROCE = RE will

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

Economics teaches that,in equilibrium,firms will earn a return equal to the ______________________________.

The price differential,or the amount by which the market has discounted share price for risk,is calculated by

Assuming that Ska's cost of equity capital is 14% and it expects to grow earnings at a rate of 8% per year,we would expect Ska's P/E ratio to be

The risk of the firm increases the _____________________________________________.

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

In the value-to-book model growth adds value to shareholders only if the growth is ________________________________________.

Discuss how risk and profitability factors cause differences in price-earnings ratios across firms.

Strictly speaking,the price-earnings ratio assumes that firm value is the

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

Financing Activities

Investing Activities

Operating Activities

Accounting Quality

Forecasting Financial Statements

Risk-Adjusted Expected Rates of Return and the Dividends Valuation Approach

Valuation: Cash-Flow-Based Approaches

Valuation: Earnings-Based Approaches

Filters

The PEG ratio does not take into account differences in and ____________________ across firms.

Under the value-to-book model a firm in steady state equilibrium earning ROCE = R_E will