Question 1

Which of the following normally does not introduce measurement error into the calculation of P/E ratios?

Accepted Answer

A)  differences in firm specific growth rates 
B)  restructuring losses 
C)  transitory gains 
D)  deferred taxes 
A)  differences in firm specific growth rates 
B)  restructuring losses 
C)  transitory gains 
D)  deferred taxes

Question 2

Investors have invested $30,000 in common equity in a company.The investors expect that the company will reinvest all income back into projects.The company is forecasted to earn $7,000 the first year,$6,000 the second year,$5,750 the third year,and $6,442 each year after the third year.The company's current stock price is $18 per share.Assuming that the company has 4,300 shares outstanding and the risk-free rate of interest is 7%,calculate the price differential for this company.

Accepted Answer

None

Question 3

One problem with the price-earnings ratio commonly reported is that:

Accepted Answer

A)  it divides share price, which reflects the present value of future earnings by historical earnings. 
B)  it divides share price, which reflects the present value of book value by historical earnings. 
C)  it does not take into consideration the present value of future earnings. 
D)  it is based on analysts' expectations. 
A)  it divides share price, which reflects the present value of future earnings by historical earnings. 
B)  it divides share price, which reflects the present value of book value by historical earnings. 
C)  it does not take into consideration the present value of future earnings. 
D)  it is based on analysts' expectations.

Question 4

Under the value-to-book model new projects will be less profitable only when:

Accepted Answer

A)  ROCE equals ROA 
B)  ROCE equals RE 
C)  ROCE is greater than RE 
D)  ROCE is less than RE 
A)  ROCE equals ROA 
B)  ROCE equals RE 
C)  ROCE is greater than RE 
D)  ROCE is less than RE

Question 5

All of the following are accounting factors that can drive a firm's price-earnings ratio in a given period to be higher than that of other firms in the same industry except:

Accepted Answer

A)  non-recurring expenses or losses in that period 
B)  a greater degree of accounting conservatism that requires expensing R&D or other intangible asset-generating activities 
C)  a less conservative accounting stance that uses straight-line depreciation rather than accelerated methods 
D)  a greater degree of accounting conservatism regarding accelerated depreciation of PP&E 
A)  non-recurring expenses or losses in that period 
B)  a greater degree of accounting conservatism that requires expensing R&D or other intangible asset-generating activities 
C)  a less conservative accounting stance that uses straight-line depreciation rather than accelerated methods 
D)  a greater degree of accounting conservatism regarding accelerated depreciation of PP&E

Question 6

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 7

Valuation using market multiples captures:

Accepted Answer

A)  absolute valuation per dollar of book value or per dollar of earnings. 
B)  dollar of book value or dollar of earnings per dollar of common equity. 
C)  relative valuation per dollar of book value or per dollar of earnings. 
D)  intrinsic valuation per dollar of book value or per dollar of earnings. 
A)  absolute valuation per dollar of book value or per dollar of earnings. 
B)  dollar of book value or dollar of earnings per dollar of common equity. 
C)  relative valuation per dollar of book value or per dollar of earnings. 
D)  intrinsic valuation per dollar of book value or per dollar of earnings.

Question 8

The value-to-book model indicates that a firm in steady state equilibrium earnings ROCE=RE will be valued at _________________________.

Accepted Answer

The answer of The value-to-book model indicates that a firm...

Question 9

All of the following are accounting factors that will cause a firm's value-to-book ratio to decrease over time except:

Accepted Answer

A)  recognizing unrealized gains on assets 
B)  a loss of competitive advantage through changes in technology or other factors 
C)  earning a high ROCE (above the equity cost of capital) on off-balance-sheet R&D assets 
D)  earning a high ROCE (above the equity cost of capital) on off-balance-sheet intangible assets (such as brand equity) over time 
A)  recognizing unrealized gains on assets 
B)  a loss of competitive advantage through changes in technology or other factors 
C)  earning a high ROCE (above the equity cost of capital) on off-balance-sheet R&D assets 
D)  earning a high ROCE (above the equity cost of capital) on off-balance-sheet intangible assets (such as brand equity) over time

Question 10

What information can a PEG ratio provide about a company's stock price? What does a PEG ratio greater than one mean? Less than one?

Accepted Answer

Analysts use the PEG ratio as a rule of

Question 11

The theoretical PE model does not work when the growth rate in ____________________ exceeds the cost of equity capital.

Accepted Answer

The answer of The theoretical PE model does not work...

Question 12

All of the following are economic factors that can cause a firm's price-earnings ratio to be higher than that of other firms in the same industry except:

Accepted Answer

A)  when investors expect that the firm's strategy enables it to generate and sustain greater profitability for a given cost of equity capital 
B)  when the firm earns the same profitability but with lower risk and, therefore, a lower cost of equity capital 
C)  a firm's business model that enables it to generate faster growth in earnings provided the growth creates positive residual ROCE 
D)  a firm's business model that results in slower growth in earnings and this creates negative residual ROCE 
A)  when investors expect that the firm's strategy enables it to generate and sustain greater profitability for a given cost of equity capital 
B)  when the firm earns the same profitability but with lower risk and, therefore, a lower cost of equity capital 
C)  a firm's business model that enables it to generate faster growth in earnings provided the growth creates positive residual ROCE 
D)  a firm's business model that results in slower growth in earnings and this creates negative residual ROCE

Question 13

Analysts use the PEG ratio to assess share price relative to earnings and _________________________________________________________________.

Accepted Answer

expected f

Question 14

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

Accepted Answer

residual i

Question 15

The market price of a share of common equity reflects the _____________________________________________ of all of the market participants following that particular stock.

Accepted Answer

aggregated

Question 16

A firm's value-to-book and market-to-book ratios may differ from one for a number of reasons.Discuss how a successful,internally funded research and development program would create a situation where the value-to-book and market-to-book ratios differ from one another.

Accepted Answer

Because research and development activit

Question 17

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 18

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.

Question 19

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 20

A company with a PEG ratio of less than one would be interpreted as having a stock price that is low relative to ______________________________.

Accepted Answer

The answer of A company with a PEG ratio of...

Which of the following normally does not introduce measurement error into the calculation of P/E ratios?

One problem with the price-earnings ratio commonly reported is that:

Under the value-to-book model new projects will be less profitable only when:

All of the following are accounting factors that can drive a firm's price-earnings ratio in a given period to be higher than that of other firms in the same industry except:

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

Valuation using market multiples captures:

The value-to-book model indicates that a firm in steady state equilibrium earnings ROCE=RE will be valued at _________________________.

All of the following are accounting factors that will cause a firm's value-to-book ratio to decrease over time except:

What information can a PEG ratio provide about a company's stock price? What does a PEG ratio greater than one mean? Less than one?

The theoretical PE model does not work when the growth rate in ____________________ exceeds the cost of equity capital.

All of the following are economic factors that can cause a firm's price-earnings ratio to be higher than that of other firms in the same industry except:

Analysts use the PEG ratio to assess share price relative to earnings and _________________________________________________________________.

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

The market price of a share of common equity reflects the _____________________________________________ of all of the market participants following that particular stock.

A firm's value-to-book and market-to-book ratios may differ from one for a number of reasons.Discuss how a successful,internally funded research and development program would create a situation where the value-to-book and market-to-book ratios differ from one another.

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

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:

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

A company with a PEG ratio of less than one would be interpreted as having a stock price that is low relative to ______________________________.

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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Exam 14: Valuation: Market-Based Approaches

Which of the following normally does not introduce measurement error into the calculation of P/E ratios?

One problem with the price-earnings ratio commonly reported is that:

Under the value-to-book model new projects will be less profitable only when:

All of the following are accounting factors that can drive a firm's price-earnings ratio in a given period to be higher than that of other firms in the same industry except:

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

Valuation using market multiples captures:

The value-to-book model indicates that a firm in steady state equilibrium earnings ROCE=RE will be valued at _________________________.

All of the following are accounting factors that will cause a firm's value-to-book ratio to decrease over time except:

What information can a PEG ratio provide about a company's stock price? What does a PEG ratio greater than one mean? Less than one?

The theoretical PE model does not work when the growth rate in ____________________ exceeds the cost of equity capital.

All of the following are economic factors that can cause a firm's price-earnings ratio to be higher than that of other firms in the same industry except:

Analysts use the PEG ratio to assess share price relative to earnings and _________________________________________________________________.

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

The market price of a share of common equity reflects the _____________________________________________ of all of the market participants following that particular stock.

A firm's value-to-book and market-to-book ratios may differ from one for a number of reasons.Discuss how a successful,internally funded research and development program would create a situation where the value-to-book and market-to-book ratios differ from one another.

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

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:

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

A company with a PEG ratio of less than one would be interpreted as having a stock price that is low relative to ______________________________.

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

Filters