Question 1

What is the difference between the EV/EBITDA ratio and the PE ratio?

Accepted Answer

The PE ratio is an all-equity ratio wher

Question 2

What amount of a firm's cash should be included in the enterprise value?

Accepted Answer

A) Only the amount needed to run the business 
B) None of the cash should be included 
C) Somewhere between 25 and 50 percent at the user's discretion 
D) Only the amount necessary to maintain a constant EV/EBITDA ratio 
E) The average cash balance over the past three years 
A) Only the amount needed to run the business 
B) None of the cash should be included 
C) Somewhere between 25 and 50 percent at the user's discretion 
D) Only the amount necessary to maintain a constant EV/EBITDA ratio 
E) The average cash balance over the past three years

Question 3

Weisbro and Sons common stock sells for $21 a share and pays an annual dividend that increases by 5 percent each year.The rate of return on this stock is 9 percent.What is the amount of the last dividend paid?

Accepted Answer

A) $.77 
B) $.80 
C) $.84 
D) $.87 
E) $.88 
A) $.77 
B) $.80 
C) $.84 
D) $.87 
E) $.88

Question 4

Jaxon's has total revenue of $418,300,earnings before interest and taxes of $102,600,depreciation of $59,200,and a tax rate of 21 percent.The firm is all-equity financed with 15,000 shares outstanding at a book value of $38.03 a share and a price-to-book ratio of 3.2.What is the firm's EV/EBITDA ratio if the firm has excess cash of $49,300?

Accepted Answer

A) 9.67 
B) 11.28 
C) 8.39 
D) 9.15 
E) 10.98 
A) 9.67 
B) 11.28 
C) 8.39 
D) 9.15 
E) 10.98

Question 5

Ancient Industries just paid a dividend of $1.03 a share.The company announced today that it expects to pay $.90 a share next year and a final liquidating dividend of $18.44 in two years.What is one share of this stock worth today if the required rate of return is 16 percent?

Accepted Answer

A) $14.94 
B) $14.48 
C) $13.23 
D) $13.44 
E) $13.60 
A) $14.94 
B) $14.48 
C) $13.23 
D) $13.44 
E) $13.60

Question 6

The closing price of a stock is quoted at 32.08,with a PE of 21 and a net change of .36.Based on this information,which one of the following statements is correct?

Accepted Answer

A) The closing price on the previous day was $.36 higher than today's closing price. 
B) A dealer will buy the stock at $32.08 and sell it at $32.44 a share. 
C) The current earnings per share equal $32.08/21 + $.36. 
D) The current stock price is equivalent to 21 years of the firm's current earnings per share. 
E) The earnings per share have increased by $.36 this year. 
A) The closing price on the previous day was $.36 higher than today's closing price. 
B) A dealer will buy the stock at $32.08 and sell it at $32.44 a share. 
C) The current earnings per share equal $32.08/21 + $.36. 
D) The current stock price is equivalent to 21 years of the firm's current earnings per share. 
E) The earnings per share have increased by $.36 this year.

Question 7

For a firm with a constant payout ratio,the dividend growth rate can be estimated as:

Accepted Answer

A) Payout ratio × Return on equity. 
B) Return on assets × Retention ratio. 
C) Return on equity × (1 + Retention ratio). 
D) Payout ratio × Return on assets. 
E) Return on retained earnings × Retention ratio. 
A) Payout ratio × Return on equity. 
B) Return on assets × Retention ratio. 
C) Return on equity × (1 + Retention ratio). 
D) Payout ratio × Return on assets. 
E) Return on retained earnings × Retention ratio.

Question 8

You have decided to purchase shares of GHC but need an expected 12 percent rate of return to compensate for the perceived risk of such ownership.What is the maximum price you should pay per share if the company pays a constant $2.70 annual dividend per share?

Accepted Answer

A) $23.04 
B) $22.50 
C) $32.67 
D) $34.29 
E) $21.59 
A) $23.04 
B) $22.50 
C) $32.67 
D) $34.29 
E) $21.59

Question 9

The free cash flow model is most helpful for firms:

Accepted Answer

A) that have similar investment opportunities as other firms in their industry. 
B) that pay steady dividends and have excess cash. 
C) that are financially sound and thus pay constant,high dividends. 
D) with external financing needs that are not paying dividends. 
E) that are projected to grow at a constant,steady pace while increasing their dividends. 
A) that have similar investment opportunities as other firms in their industry. 
B) that pay steady dividends and have excess cash. 
C) that are financially sound and thus pay constant,high dividends. 
D) with external financing needs that are not paying dividends. 
E) that are projected to grow at a constant,steady pace while increasing their dividends.

Question 10

In the formula,P3 = Dx/(R − g),the dividend is for period:

Accepted Answer

A) two. 
B) five. 
C) four. 
D) three. 
E) one. 
A) two. 
B) five. 
C) four. 
D) three. 
E) one.

Question 11

The total return on a stock is equal to the:

Accepted Answer

A) dividend yield minus the capital gains yield. 
B) dividend growth rate minus the dividend yield. 
C) dividend yield plus the dividend growth rate. 
D) growth rate of the dividends. 
E) dividend divided by the sum of the dividend yield and capital gains yield. 
A) dividend yield minus the capital gains yield. 
B) dividend growth rate minus the dividend yield. 
C) dividend yield plus the dividend growth rate. 
D) growth rate of the dividends. 
E) dividend divided by the sum of the dividend yield and capital gains yield.

Question 12

The constant dividend growth model:

Accepted Answer

A) is more complex than the differential growth model. 
B) requires the growth period be limited to a set number of years. 
C) is never used because firms rarely attempt to maintain steady dividend growth. 
D) can be used to compute a stock price at any point in time. 
E) most applies to stocks with differential growth rates. 
A) is more complex than the differential growth model. 
B) requires the growth period be limited to a set number of years. 
C) is never used because firms rarely attempt to maintain steady dividend growth. 
D) can be used to compute a stock price at any point in time. 
E) most applies to stocks with differential growth rates.

Question 13

A stock pays a constant annual dividend and sells for $31.11 a share.If the dividend yield of this stock is 9 percent,what is the dividend amount?

Accepted Answer

A) $1.40 
B) $1.80 
C) $2.20 
D) $2.40 
E) $2.80 
A) $1.40 
B) $1.80 
C) $2.20 
D) $2.40 
E) $2.80

Question 14

Explain the differences between a market order,a limit order,and a stop order.

Accepted Answer

A market order will be executed immediat

Question 15

Yesterday,Railway Tours paid its annual dividend of $1.20 per share.The company has been reducing the dividends by 10 percent each year.What is the value of this stock at a discount rate of 13 percent?

Accepted Answer

A) $4.70 
B) $3.71 
C) $8.31 
D) $36.00 
E) $27.00 
A) $4.70 
B) $3.71 
C) $8.31 
D) $36.00 
E) $27.00

Question 16

NASDAQ:

Accepted Answer

A) has a single trading floor located in Chicago,Illinois. 
B) has multiple trading floors. 
C) is a designated market maker system. 
D) has a multiple market maker system. 
E) is closed to all electronic communications networks (ECNs). 
A) has a single trading floor located in Chicago,Illinois. 
B) has multiple trading floors. 
C) is a designated market maker system. 
D) has a multiple market maker system. 
E) is closed to all electronic communications networks (ECNs).

Question 17

Lory Company had net earnings of $127,000 this past year of which $46,200 was paid out in dividends.The company's equity was $1,587,500.Lory has 200,000 shares outstanding with a current market price of $11.63 per share.Both the number of shares and the dividend payout ratio are constant.What is the required rate of return if the growth rate is 5.6 percent?

Accepted Answer

A) 8.42 percent 
B) 6.67 percent 
C) 7.70 percent 
D) 7.39 percent 
E) 8.24 percent 
A) 8.42 percent 
B) 6.67 percent 
C) 7.70 percent 
D) 7.39 percent 
E) 8.24 percent

Question 18

Upland Motors recently paid a per share dividend of $1.48.Dividends are expected to increase by 2.5 percent annually.What is one share of this stock worth today if the appropriate discount rate is 14 percent?

Accepted Answer

A) $12.87 
B) $13.04 
C) $14.16 
D) $13.19 
E) $12.25 
A) $12.87 
B) $13.04 
C) $14.16 
D) $13.19 
E) $12.25

Question 19

T&P common stock sells for $23.43 a share at a market rate of return of 11.65 percent.The company just paid its annual dividend of $1.20.What is the dividend growth rate?

Accepted Answer

A) 5.87 percent 
B) 6.43 percent 
C) 5.91 percent 
D) 6.07 percent 
E) 6.21 percent 
A) 5.87 percent 
B) 6.43 percent 
C) 5.91 percent 
D) 6.07 percent 
E) 6.21 percent

Question 20

The Reading Co.has adopted a policy of increasing the annual dividend on its common stock at a constant rate of 3 percent annually.The last dividend it paid (T = 0)was $.90 a share.What will be the company's dividend six years from now?

Accepted Answer

A) $.90 
B) $.93 
C) $1.04 
D) $1.07 
E) $1.11 
A) $.90 
B) $.93 
C) $1.04 
D) $1.07 
E) $1.11

Exam 9: Stock Valuation

What is the difference between the EV/EBITDA ratio and the PE ratio?

What amount of a firm's cash should be included in the enterprise value?

Weisbro and Sons common stock sells for $21 a share and pays an annual dividend that increases by 5 percent each year.The rate of return on this stock is 9 percent.What is the amount of the last dividend paid?

Ancient Industries just paid a dividend of $1.03 a share.The company announced today that it expects to pay $.90 a share next year and a final liquidating dividend of $18.44 in two years.What is one share of this stock worth today if the required rate of return is 16 percent?

The closing price of a stock is quoted at 32.08,with a PE of 21 and a net change of .36.Based on this information,which one of the following statements is correct?

For a firm with a constant payout ratio,the dividend growth rate can be estimated as:

You have decided to purchase shares of GHC but need an expected 12 percent rate of return to compensate for the perceived risk of such ownership.What is the maximum price you should pay per share if the company pays a constant $2.70 annual dividend per share?

The free cash flow model is most helpful for firms:

In the formula,P3 = Dx/(R − g),the dividend is for period:

The total return on a stock is equal to the:

The constant dividend growth model:

A stock pays a constant annual dividend and sells for $31.11 a share.If the dividend yield of this stock is 9 percent,what is the dividend amount?

Explain the differences between a market order,a limit order,and a stop order.

Yesterday,Railway Tours paid its annual dividend of $1.20 per share.The company has been reducing the dividends by 10 percent each year.What is the value of this stock at a discount rate of 13 percent?

NASDAQ:

Upland Motors recently paid a per share dividend of $1.48.Dividends are expected to increase by 2.5 percent annually.What is one share of this stock worth today if the appropriate discount rate is 14 percent?

T&P common stock sells for $23.43 a share at a market rate of return of 11.65 percent.The company just paid its annual dividend of $1.20.What is the dividend growth rate?

The Reading Co.has adopted a policy of increasing the annual dividend on its common stock at a constant rate of 3 percent annually.The last dividend it paid (T = 0)was $.90 a share.What will be the company's dividend six years from now?

Introduction to Corporate Finance

Financial Statements and Cash Flow

Financial Statements and Cash Flow

Discounted Cash Flow Valuation

Net Present Value and Other Investment Rules

Making Capital Investment Decisions

Risk Analysis, real Options, and Capital Budgeting

Interest Rates and Bond Valuation

Lessons From Market History

Return, risk, and the Capital Asset Pricing Model Capm

An Alternative View of Risk and Return: the Arbitrage Pricing Theory

Risk, cost of Capital, and Valuation

Efficient Capital Markets and Behavioral Challenges

Long-Term Financing

Capital Structure: Basic Concepts

Capital Structure: Limits to the Use of Debt

Valuation and Capital Budgeting for the Levered Firm

Dividends and Other Payouts

Raising Capital

Leasing

Options and Corporate Finance

Options and Corporate Finance: Extensions and Applications

Warrants and Convertibles

Derivatives and Hedging Risk

Short-Term Finance and Planning

Cash Management

Credit and Inventory Management

Mergers,acquisitions,and Divestitures

Financial Distress

International Corporate Finance

Filters

In the formula,P₃ = D_x/(R − g),the dividend is for period: