Question 1

A decrease in which one of the following will increase a firm's sustainable rate of growth?

Accepted Answer

A) net income 
B) dividend payout ratio 
C) total assets 
D) retention ratio 
E) earnings per share 
A) net income 
B) dividend payout ratio 
C) total assets 
D) retention ratio 
E) earnings per share

Question 2

Wilderness Adventures has earnings per share of $2.45 and dividends per share of $1.05.The total equity of the firm is $850,000.There are 40,000 shares of stock outstanding.What is the sustainable rate of growth?

Accepted Answer

A) 2.14 percent 
B) 3.31 percent 
C) 4.97 percent 
D) 5.32 percent 
E) 6.59 percent 
A) 2.14 percent 
B) 3.31 percent 
C) 4.97 percent 
D) 5.32 percent 
E) 6.59 percent

Question 3

Identify three causes for a decrease in a firm's sustainable rate of growth.

Accepted Answer

A firm's sustainable rate of growth is t

Question 4

Which one of the following terms is used to identify the evaluation method that determines the value of a stock by reviewing a firm's financial statement in conjunction with other financial and economic information?

Accepted Answer

A) technical analysis 
B) conceptual analysis 
C) prediction valuation 
D) fundamental analysis 
E) discounted valuation 
A) technical analysis 
B) conceptual analysis 
C) prediction valuation 
D) fundamental analysis 
E) discounted valuation

Question 5

Which one of the following is the most common definition of cash flow as used in the price-cash flow ratio?

Accepted Answer

A) net income minus dividends 
B) net income plus depreciation 
C) net income minus depreciation plus taxes 
D) earnings before interest and taxes plus depreciation 
E) earnings before interest and taxes 
A) net income minus dividends 
B) net income plus depreciation 
C) net income minus depreciation plus taxes 
D) earnings before interest and taxes plus depreciation 
E) earnings before interest and taxes

Question 6

The Grand Isle has 12,000 shares of stock outstanding at a market price of $31.60 per share.The book value per share is $12.08.The firm has earnings per share of $1.86 and a dividend payout ratio of .40.What is the firm's sustainable rate of growth?

Accepted Answer

A) 8.88 percent 
B) 9.24 percent 
C) 9.71 percent 
D) 10.57 percent 
E) 10.86 percent 
A) 8.88 percent 
B) 9.24 percent 
C) 9.71 percent 
D) 10.57 percent 
E) 10.86 percent

Question 7

A stock sells for $12.36 a share and has a required return of 9 percent.Dividends are paid annually and increase at a constant 3 percent per year.What is the amount of the last dividend paid?

Accepted Answer

A) $0.46 
B) $0.50 
C) $0.59 
D) $0.63 
E) $0.72 
A) $0.46 
B) $0.50 
C) $0.59 
D) $0.63 
E) $0.72

Question 8

Lambert Corporation reported net income of $60 million for last year.Depreciation expense totaled $20 million and capital expenditures came to $5 million.Free cash flow is expected to grow at a rate of 4.5% for the foreseeable future.Lambert faces a 40% tax rate and has a 0.45 debt to equity ratio with $185 million (market value)in debt outstanding.Lambert's equity beta is 1.25,the risk-free rate is currently 5% and the market risk premium is estimated to be 6.5%.What is the current total value of Lambert's equity (in millions)?

Accepted Answer

A) $655.90 
B) $731.20 
C) $840.95 
D) $951.26 
E) $1,025.95 
A) $655.90 
B) $731.20 
C) $840.95 
D) $951.26 
E) $1,025.95

Question 9

Which one of the following is used as an indicator that a firm has good-quality earnings?

Accepted Answer

A) declining price-earnings ratios 
B) constant price-earnings ratios 
C) cash flow per share that exceeds earnings per share 
D) earnings per share that exceed cash flow per share 
E) positive earnings per share 
A) declining price-earnings ratios 
B) constant price-earnings ratios 
C) cash flow per share that exceeds earnings per share 
D) earnings per share that exceed cash flow per share 
E) positive earnings per share

Question 10

Long Life Floors just paid an annual dividend of $0.82 a share and plans on increasing future dividends by 2 percent annually.The discount rate is 15 percent.What will the value of this stock be 5 years from today?

Accepted Answer

A) $6.96 
B) $7.04 
C) $7.10 
D) $7.18 
E) $7.25 
A) $6.96 
B) $7.04 
C) $7.10 
D) $7.18 
E) $7.25

Question 11

How is a sustainable dividend growth rate defined?

Accepted Answer

A) a constant rate at which dividends increase 
B) a rate of growth that does not exceed two percent of the annual increase in revenue 
C) a rate of growth that is set equal to one-half of the average growth rate of a firm's earnings 
D) a rate that can be supported over time by a company's earnings 
E) a rate of dividend growth that is equal to the discount rate used to value the firm's stock 
A) a constant rate at which dividends increase 
B) a rate of growth that does not exceed two percent of the annual increase in revenue 
C) a rate of growth that is set equal to one-half of the average growth rate of a firm's earnings 
D) a rate that can be supported over time by a company's earnings 
E) a rate of dividend growth that is equal to the discount rate used to value the firm's stock

Question 12

Currently,Southern Foods has sales of $1.32 million,net profit of $521,400,and 125,000 shares of stock outstanding.The sales and net profit are each expected to grow by 6 percent annually.The historical P/S ratio is 7.8.What is the expected price of this stock one year from now?

Accepted Answer

A) $32.54 
B) $34.49 
C) $82.37 
D) $85.15 
E) $87.31 
A) $32.54 
B) $34.49 
C) $82.37 
D) $85.15 
E) $87.31

Question 13

Growth stocks are frequently described as having which one of the following characteristics?

Accepted Answer

A) high dividends 
B) a value orientation 
C) high P/E ratios 
D) low cash flows per share 
E) low retention ratios 
A) high dividends 
B) a value orientation 
C) high P/E ratios 
D) low cash flows per share 
E) low retention ratios

Question 14

The residual income model for valuing a stock suffers from some of the same estimating errors as the dividend growth model.Identify and explain these estimating errors.

Accepted Answer

The residual income model for valuing a

Question 15

Art Supplies has a net income of $138,600.The firm has $1.25 million in assets and $500,000 in liabilities.What is the return on equity?

Accepted Answer

A) 13.87 percent 
B) 15.09 percent 
C) 16.44 percent 
D) 18.48 percent 
E) 21.21 percent 
A) 13.87 percent 
B) 15.09 percent 
C) 16.44 percent 
D) 18.48 percent 
E) 21.21 percent

Question 16

Wholesale Foods common stock is valued at $11.05 per share.The firm pays annual dividends which increase at a constant rate.The last dividend paid was $1.20.The required return is 12 percent.What is the dividend growth rate?

Accepted Answer

A) 1.03 percent 
B) 1.67 percent 
C) 3.47 percent 
D) 3.59 percent 
E) 4.00 percent 
A) 1.03 percent 
B) 1.67 percent 
C) 3.47 percent 
D) 3.59 percent 
E) 4.00 percent

Question 17

PT Boats plans to pay a $2.25 a share dividend at the end of each of the next 2 years.At the end of year 3,it will pay a final liquidating dividend of $15 a share.After that,the company plans to close its doors permanently.What is the current value of this stock at a discount rate of 15 percent?

Accepted Answer

A) $9.89 
B) $10.26 
C) $11.54 
D) $12.47 
E) $13.50 
A) $9.89 
B) $10.26 
C) $11.54 
D) $12.47 
E) $13.50

Question 18

The Fish House increases its dividend each year.The next annual dividend is expected to be $2.32 a share.Future dividends will increase by 4.0 percent annually.What is the current value of this stock if the discount rate is 12 percent?

Accepted Answer

A) $28.91 
B) $28.05 
C) $28.78 
D) $29.00 
E) $29.18 
A) $28.91 
B) $28.05 
C) $28.78 
D) $29.00 
E) $29.18

Question 19

Which one of the following will increase the current residual income of a firm?

Accepted Answer

A) an increase in required earnings 
B) a decrease in the current earnings per share 
C) a decrease in future earnings per share 
D) a decrease in the required return on the firm's equity 
E) an increase in the firm's beginning book equity per share 
A) an increase in required earnings 
B) a decrease in the current earnings per share 
C) a decrease in future earnings per share 
D) a decrease in the required return on the firm's equity 
E) an increase in the firm's beginning book equity per share

Question 20

Which one of the following statements related to the price-earnings (P/E)ratio is correct?

Accepted Answer

A) The earnings yield is the inverse of the P/E ratio. 
B) The P/E ratio is equal to the market price per share divided by total net income. 
C) The P/E ratio shown in The Wall Street Journal is based on next year's estimated earnings per share. 
D) The P/E ratio varies directly with earnings per share. 
E) The earnings for the past twelve months is the method analysts prefer for computing earnings for the P/E ratio. 
A) The earnings yield is the inverse of the P/E ratio. 
B) The P/E ratio is equal to the market price per share divided by total net income. 
C) The P/E ratio shown in The Wall Street Journal is based on next year's estimated earnings per share. 
D) The P/E ratio varies directly with earnings per share. 
E) The earnings for the past twelve months is the method analysts prefer for computing earnings for the P/E ratio.

A decrease in which one of the following will increase a firm's sustainable rate of growth?

Wilderness Adventures has earnings per share of $2.45 and dividends per share of $1.05.The total equity of the firm is $850,000.There are 40,000 shares of stock outstanding.What is the sustainable rate of growth?

Identify three causes for a decrease in a firm's sustainable rate of growth.

Which one of the following terms is used to identify the evaluation method that determines the value of a stock by reviewing a firm's financial statement in conjunction with other financial and economic information?

Which one of the following is the most common definition of cash flow as used in the price-cash flow ratio?

The Grand Isle has 12,000 shares of stock outstanding at a market price of $31.60 per share.The book value per share is $12.08.The firm has earnings per share of $1.86 and a dividend payout ratio of .40.What is the firm's sustainable rate of growth?

A stock sells for $12.36 a share and has a required return of 9 percent.Dividends are paid annually and increase at a constant 3 percent per year.What is the amount of the last dividend paid?

Which one of the following is used as an indicator that a firm has good-quality earnings?

Long Life Floors just paid an annual dividend of $0.82 a share and plans on increasing future dividends by 2 percent annually.The discount rate is 15 percent.What will the value of this stock be 5 years from today?

How is a sustainable dividend growth rate defined?

Currently,Southern Foods has sales of $1.32 million,net profit of $521,400,and 125,000 shares of stock outstanding.The sales and net profit are each expected to grow by 6 percent annually.The historical P/S ratio is 7.8.What is the expected price of this stock one year from now?

Growth stocks are frequently described as having which one of the following characteristics?

The residual income model for valuing a stock suffers from some of the same estimating errors as the dividend growth model.Identify and explain these estimating errors.

Art Supplies has a net income of $138,600.The firm has $1.25 million in assets and $500,000 in liabilities.What is the return on equity?

Wholesale Foods common stock is valued at $11.05 per share.The firm pays annual dividends which increase at a constant rate.The last dividend paid was $1.20.The required return is 12 percent.What is the dividend growth rate?

PT Boats plans to pay a $2.25 a share dividend at the end of each of the next 2 years.At the end of year 3,it will pay a final liquidating dividend of $15 a share.After that,the company plans to close its doors permanently.What is the current value of this stock at a discount rate of 15 percent?

The Fish House increases its dividend each year.The next annual dividend is expected to be $2.32 a share.Future dividends will increase by 4.0 percent annually.What is the current value of this stock if the discount rate is 12 percent?

Which one of the following will increase the current residual income of a firm?

Which one of the following statements related to the price-earnings (P/E)ratio is correct?

A Brief History of Risk and Return

The Investment Process

Overview of Security Types

Mutual Funds and Other Investment Companies

The Stock Market

Stock Price Behavior and Market Efficiency

Behavioral Finance and the Psychology of Investing

Interest Rates

Bond Prices and Yields

Diversification and Risky Asset Allocation

Return, Risk, and the Security Market Line

Performance Evaluation and Risk Management

Futures Contracts

Stock Options

Option Valuation

Projecting Cash Flow and Earnings

Corporate and Government Bonds

Global Economic Activity and Industry Analysis

Mortgage-Backed Securities

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Exam 6: Common Stock Valuation

A decrease in which one of the following will increase a firm's sustainable rate of growth?

Wilderness Adventures has earnings per share of $2.45 and dividends per share of $1.05.The total equity of the firm is $850,000.There are 40,000 shares of stock outstanding.What is the sustainable rate of growth?

Identify three causes for a decrease in a firm's sustainable rate of growth.

Which one of the following terms is used to identify the evaluation method that determines the value of a stock by reviewing a firm's financial statement in conjunction with other financial and economic information?

Which one of the following is the most common definition of cash flow as used in the price-cash flow ratio?

The Grand Isle has 12,000 shares of stock outstanding at a market price of $31.60 per share.The book value per share is $12.08.The firm has earnings per share of $1.86 and a dividend payout ratio of .40.What is the firm's sustainable rate of growth?

A stock sells for $12.36 a share and has a required return of 9 percent.Dividends are paid annually and increase at a constant 3 percent per year.What is the amount of the last dividend paid?

Which one of the following is used as an indicator that a firm has good-quality earnings?

Long Life Floors just paid an annual dividend of $0.82 a share and plans on increasing future dividends by 2 percent annually.The discount rate is 15 percent.What will the value of this stock be 5 years from today?

How is a sustainable dividend growth rate defined?

Currently,Southern Foods has sales of $1.32 million,net profit of $521,400,and 125,000 shares of stock outstanding.The sales and net profit are each expected to grow by 6 percent annually.The historical P/S ratio is 7.8.What is the expected price of this stock one year from now?

Growth stocks are frequently described as having which one of the following characteristics?

The residual income model for valuing a stock suffers from some of the same estimating errors as the dividend growth model.Identify and explain these estimating errors.

Art Supplies has a net income of $138,600.The firm has $1.25 million in assets and $500,000 in liabilities.What is the return on equity?

Wholesale Foods common stock is valued at $11.05 per share.The firm pays annual dividends which increase at a constant rate.The last dividend paid was $1.20.The required return is 12 percent.What is the dividend growth rate?

PT Boats plans to pay a $2.25 a share dividend at the end of each of the next 2 years.At the end of year 3,it will pay a final liquidating dividend of $15 a share.After that,the company plans to close its doors permanently.What is the current value of this stock at a discount rate of 15 percent?

The Fish House increases its dividend each year.The next annual dividend is expected to be $2.32 a share.Future dividends will increase by 4.0 percent annually.What is the current value of this stock if the discount rate is 12 percent?

Which one of the following will increase the current residual income of a firm?

Which one of the following statements related to the price-earnings (P/E)ratio is correct?

A Brief History of Risk and Return

The Investment Process

Overview of Security Types

Mutual Funds and Other Investment Companies

The Stock Market

Stock Price Behavior and Market Efficiency

Behavioral Finance and the Psychology of Investing

Interest Rates

Bond Prices and Yields

Diversification and Risky Asset Allocation

Return, Risk, and the Security Market Line

Performance Evaluation and Risk Management

Futures Contracts

Stock Options

Option Valuation

Projecting Cash Flow and Earnings

Corporate and Government Bonds

Global Economic Activity and Industry Analysis

Mortgage-Backed Securities

Filters