Use the following information to answer the requirements: $\begin{array} { | c | r | r |} \hline & \text { CompanyX } & \text { Company Y } \\ \hline \text { Reparted EPS } & 1500 & 1500 \\ \hline \text { EpS decampesed: } & & \\ \hline \text { Permanent } & 75 \% & 65 \% \\ \hline \text { Transitary } & 20 \% & 25 \% \\ \hline \text { Value-irrelevant } & 5 \% & 10 \% \\ \hline \end{array}$ Required: a.Use a risk-adjusted cost of capital of 15% to calculate each firm's implied share price and earning multiples.What are the implicit share prices and earnings multiples for the two firms different? b.Repeat requirement a.,but use a risk-adjusted cost of capital of 8% instead.

a. Company X As before,the implied sh

Exam 14: Valuation: Market-Based Approaches

a.Compute the price-earnings ratio under the following sets of assumptions: A. Cost of Equity Growth Rate P/R Scenario Capital in Earnings Ratio 1 0.13 0.09 2 0.13 0.11 3 0.15 0.09 4 0.18 0.09 5 0.18 0.11 b.Assess the sensitivity of the price-earnings ratio to changes in the cost of equity capital and changes in the growth rate.

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Question 21

The ______________________________ represents the value of the firm,based on book value of equity and forecasts of expected future earnings,in the absence of discounting for risk.

(Short Answer)

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Question 22

Market multiples capture ____________________ valuation per dollar of book value or per dollar of earnings.

(Short Answer)

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Question 23

A company is expected to generate $175,000 in earnings next period and requires a 20% return on equity capital.Using the assumptions of the price-earnings ratio,what would be the company's value at the beginning of next period?

(Multiple Choice)

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Question 24

The PE multiple assumes that firm value is the present value of a constant stream of _____________________________________________,discounted at a constant expected future discount rate.

(Short Answer)

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Question 25

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

(Multiple Choice)

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Question 26

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

(Multiple Choice)

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Question 27

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

(Essay)

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Question 28

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

(Multiple Choice)

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Question 29

When a company has a high market to book ratio this could be a result of the company having __________________________________________________.

(Short Answer)

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Question 30

Trading on the equity is likely to be a good financial strategy for stockholders of companies having:

(Multiple Choice)

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Question 31

Why is book value often meaningless? What improvements to financial statements would make it more meaningful?

(Essay)

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Question 32

Use the following information to answer the requirements: CompanyX Company Y Reparted EPS 1500 1500 EpS decampesed: Permanent 75\% 65\% Transitary 20\% 25\% Value-irrelevant 5\% 10\% Required: a.Use a risk-adjusted cost of capital of 15% to calculate each firm's implied share price and earning multiples.What are the implicit share prices and earnings multiples for the two firms different? b.Repeat requirement a.,but use a risk-adjusted cost of capital of 8% instead.

(Essay)

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Question 33

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

(Multiple Choice)

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Question 34

A company is expected to have a value of $142,857 at the start of next period and investors require a 14 percent return on equity capital.Using the assumptions of the price-earnings ratio,what would be the company's earnings for the current year?

(Multiple Choice)

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Question 35

In research examining market efficiency,Bernard and Thomas examined quarterly earnings announcements.Discuss how Bernard and Thomas test the issue of market efficiency and the results of their research.

(Essay)

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Question 36

Firms with low P/E ratios tend to have current residual income that is greater than _____________________________________________.

(Short Answer)

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Question 37

What is a price differential and how is it computed? What information does a price differential provide to an analyst?

(Essay)

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Question 38

The value-to-book ratio reflects an analyst's expectation of the firm's ____________________ value to book value.

(Short Answer)

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Question 39

Wolverwine Company's current stock price is $55 per share and the company's trailing earnings per share were $2.10.Given that analysts are forecasting growth of 12% for Wolverwine,what is the company's PEG ratio?

(Multiple Choice)

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Question 40

Showing 21 - 40 of 61

The ______________________________ represents the value of the firm,based on book value of equity and forecasts of expected future earnings,in the absence of discounting for risk.

Market multiples capture ____________________ valuation per dollar of book value or per dollar of earnings.

A company is expected to generate $175,000 in earnings next period and requires a 20% return on equity capital.Using the assumptions of the price-earnings ratio,what would be the company's value at the beginning of next period?

The PE multiple assumes that firm value is the present value of a constant stream of _____________________________________________,discounted at a constant expected future discount rate.

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

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

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

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

When a company has a high market to book ratio this could be a result of the company having __________________________________________________.

Trading on the equity is likely to be a good financial strategy for stockholders of companies having:

Why is book value often meaningless? What improvements to financial statements would make it more meaningful?

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

A company is expected to have a value of $142,857 at the start of next period and investors require a 14 percent return on equity capital.Using the assumptions of the price-earnings ratio,what would be the company's earnings for the current year?

In research examining market efficiency,Bernard and Thomas examined quarterly earnings announcements.Discuss how Bernard and Thomas test the issue of market efficiency and the results of their research.

Firms with low P/E ratios tend to have current residual income that is greater than _____________________________________________.

What is a price differential and how is it computed? What information does a price differential provide to an analyst?

The value-to-book ratio reflects an analyst's expectation of the firm's ____________________ value to book value.

Wolverwine Company's current stock price is $55 per share and the company's trailing earnings per share were $2.10.Given that analysts are forecasting growth of 12% for Wolverwine,what is the company's PEG ratio?

Overview of Financial Reporting, Financial Statement Analysis, and Valuation

Asset and Liability Valuation and Income Recognition

Income Flows versus Cash Flows: Understanding the Statement of Cash Flows

Profitability Analysis

Risk Analysis

Accounting Quality

Financing Activities

Investing Activities

Operating Activities

Forecasting Financial Statements

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

Valuation: Cash-Flow-Based Approaches

Valuation: Earnings-Based Approaches

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