Question 1

The asset backing model of valuation operates by assuming the company is solvent and able to continue as an ongoing concern.

Accepted Answer

A) True 
 B)False

Question 2

An investor estimates that a company has a maintainable constant level of EPS of $1.20.The investor also estimates the cost of equity capital to be 14%.New projects adopted for the next three years are expected to generate net returns equal to $4.70,$7.90 and $8.10 in years 1,2 and 3 respectively.What is the present value of one share in this company?

Accepted Answer

A)  $ \$ 16.78 $ 
B)  $ \$ 19.61 $ 
C)  $ \$ 21.61 $ 
D)  $ \$ 24.24 $ 
A)  $ \$ 16.78 $ 
B)  $ \$ 19.61 $ 
C)  $ \$ 21.61 $ 
D)  $ \$ 24.24 $

Question 3

Annie's Donut Shops,Inc. ,has just paid a dividend of $3.The firm's ROE is 18%,and its earnings retention ratio is 60%.If the firm's cost of capital is 12%,what is the value of the firm excluding any growth opportunities?

Accepted Answer

A) $25 
B) $50 
C) $83.33 
D) $208 
A) $25 
B) $50 
C) $83.33 
D) $208

Question 4

The correct price of a share with a cost of capital of 25% p.a.that pays $0.28 p.a.dividends in perpetuity is:

Accepted Answer

A)  $ \$ 1.12 $ 
B)  $ \$ 1.20 $ 
C)  $ \$ 0.89 $ 
D)  $ \$ 0.07 $ 
A)  $ \$ 1.12 $ 
B)  $ \$ 1.20 $ 
C)  $ \$ 0.89 $ 
D)  $ \$ 0.07 $

Question 5

The dividend payout ratio of a firm is 40%.If the cost of equity capital for the firm is 10% p.a.and the corporate tax rate is 30%,calculate the plowback ratio.

Accepted Answer

A) $ 24 \% $ 
B)  $ 46 \% $ 
C)  $ 54 \% $ 
D)  $ 60 \% $ 
A) $ 24 \% $ 
B)  $ 46 \% $ 
C)  $ 54 \% $ 
D)  $ 60 \% $

Question 6

The market capitalisation rate on the stock of Aberdeen Wholesale Company is 10%.Its expected ROE is 12%,and its expected EPS is $5.If the firm's plowback ratio is 50%,its P/E ratio will be _________.

Accepted Answer

A) 8.33 
B) 12.5 
C) 19.23 
D) 24.15 
A) 8.33 
B) 12.5 
C) 19.23 
D) 24.15

Question 7

The constant-growth dividend discount model (DDM)can be used only when the ___________.

Accepted Answer

A) growth rate is less than or equal to the required return 
B) growth rate is greater than or equal to the required return 
C) growth rate is less than the required return 
D) growth rate is greater than the required return 
A) growth rate is less than or equal to the required return 
B) growth rate is greater than or equal to the required return 
C) growth rate is less than the required return 
D) growth rate is greater than the required return

Question 8

The cost of equity capital for a firm can be estimated using an asset pricing model.

Accepted Answer

A) True 
 B)False

Question 9

The price of a security is set by:

Accepted Answer

A)  the underlying company 
B)  the securities exchange upon opening 
C)  securities exchange listing rules 
D)  the marginal investor 
A)  the underlying company 
B)  the securities exchange upon opening 
C)  securities exchange listing rules 
D)  the marginal investor

Question 10

Company ABC currently pays annual dividends of $0.40,and growth of these dividends is expected to be at 5% p.a.Given a cost of equity capital of 10%,what is the estimated current share price of ABC?

Accepted Answer

A)  $ \$ 7.80 $ 
B)  $ \$ 8.40 $ 
C)  $ \$ 8.90 $ 
D)  $ \$ 9.20 $ 
A)  $ \$ 7.80 $ 
B)  $ \$ 8.40 $ 
C)  $ \$ 8.90 $ 
D)  $ \$ 9.20 $

Question 11

The horizon value is the project life where constant growth is assumed.

Accepted Answer

A) True 
 B)False

Question 12

Musters Ltd currently pays a dividend of $0.76.One share in Musters Ltd currently costs $14.25.Given a cost of equity capital of 9%,what is the implied constant growth rate?

Accepted Answer

A)  $ 1.9891 \% $ 
B)  $ 0.0134 \% $ 
C)  $ 0.0666 \% $ 
D)  $ 10.4978 \% $ 
A)  $ 1.9891 \% $ 
B)  $ 0.0134 \% $ 
C)  $ 0.0666 \% $ 
D)  $ 10.4978 \% $

Question 13

If a company with a share price of $6 has earnings per share of $0.15,calculate the cost of capital for the firm.

Accepted Answer

A)  $ \$ 0.025 $ 
B)  $ \$ 0.250 $ 
C)  $ \$ 0.90 $ 
D)  $ \$ 2.50 $ 
A)  $ \$ 0.025 $ 
B)  $ \$ 0.250 $ 
C)  $ \$ 0.90 $ 
D)  $ \$ 2.50 $

Question 14

If a share is trading above its P/E multiplier,then it is trading at a discount.

Accepted Answer

A) True 
 B)False

Question 15

If the value of an asset is more than its price,then the asset is said to be overpriced.

Accepted Answer

A) True 
 B)False

Question 16

MSB Ltd has a current share price of $14.55.If MSB has a constant expected growth rate of 5% and is expected to pay a dividend of $0.65 per share,what is MSB's cost of capital?

Accepted Answer

A)  $ 9.47 \% $ 
B)  $ 11.21 \% $ 
C)  $ 12.93 \% $ 
D)  $ 13.04 \% $ 
A)  $ 9.47 \% $ 
B)  $ 11.21 \% $ 
C)  $ 12.93 \% $ 
D)  $ 13.04 \% $

Question 17

In the earnings capitalisation model,defining growth involves using the zero growth model,and then subtracting the present value of the growth opportunities.

Accepted Answer

A) True 
 B)False

Question 18

A company has revenues of $170 000,expenses of $45 000 and tax of $37 500.If the company also has a working capital level of $25 000 and the corporate tax rate is 30%,estimate the level of free cash flows for the firm.

Accepted Answer

A)  $ \$ 55 \quad 000 $ 
B)  $ \$ 112 \quad 500 $ 
C)  $ \$ 123 \quad 750 $ 
D)  $ \$ 18 \quad 7500 $ 
A)  $ \$ 55 \quad 000 $ 
B)  $ \$ 112 \quad 500 $ 
C)  $ \$ 123 \quad 750 $ 
D)  $ \$ 18 \quad 7500 $

Question 19

Klister Corporation currently pays dividends of $2.75.The current market price of one share in Klister Corporation is $38.If the growth rate is thought to be 7.5%,what is the implied cost of equity capital?

Accepted Answer

A)  $ 7.2 \% $ 
B)  $ 8.6 \% $ 
C)  $ 8.8 \% $ 
D)  $ 15,20 \% $ 
A)  $ 7.2 \% $ 
B)  $ 8.6 \% $ 
C)  $ 8.8 \% $ 
D)  $ 15,20 \% $

Question 20

Shares in Anza Ltd are currently trading at a P/E ratio of 17.0.If the current price of Anza Ltd shares is $8.60,what is expected future price of the share?

Accepted Answer

A)  $ \$ 6.31 $ 
B)  $ \$ 9.11 $ 
C)  $ \$ 9.73 $ 
D)  $ \$ 16.54 $ 
A)  $ \$ 6.31 $ 
B)  $ \$ 9.11 $ 
C)  $ \$ 9.73 $ 
D)  $ \$ 16.54 $

The asset backing model of valuation operates by assuming the company is solvent and able to continue as an ongoing concern.

Annie's Donut Shops,Inc. ,has just paid a dividend of $3.The firm's ROE is 18%,and its earnings retention ratio is 60%.If the firm's cost of capital is 12%,what is the value of the firm excluding any growth opportunities?

The correct price of a share with a cost of capital of 25% p.a.that pays $0.28 p.a.dividends in perpetuity is:

The dividend payout ratio of a firm is 40%.If the cost of equity capital for the firm is 10% p.a.and the corporate tax rate is 30%,calculate the plowback ratio.

The market capitalisation rate on the stock of Aberdeen Wholesale Company is 10%.Its expected ROE is 12%,and its expected EPS is $5.If the firm's plowback ratio is 50%,its P/E ratio will be _________.

The constant-growth dividend discount model (DDM)can be used only when the ___________.

The cost of equity capital for a firm can be estimated using an asset pricing model.

The price of a security is set by:

Company ABC currently pays annual dividends of $0.40,and growth of these dividends is expected to be at 5% p.a.Given a cost of equity capital of 10%,what is the estimated current share price of ABC?

The horizon value is the project life where constant growth is assumed.

Musters Ltd currently pays a dividend of $0.76.One share in Musters Ltd currently costs $14.25.Given a cost of equity capital of 9%,what is the implied constant growth rate?

If a company with a share price of $6 has earnings per share of $0.15,calculate the cost of capital for the firm.

If a share is trading above its P/E multiplier,then it is trading at a discount.

If the value of an asset is more than its price,then the asset is said to be overpriced.

MSB Ltd has a current share price of $14.55.If MSB has a constant expected growth rate of 5% and is expected to pay a dividend of $0.65 per share,what is MSB's cost of capital?

In the earnings capitalisation model,defining growth involves using the zero growth model,and then subtracting the present value of the growth opportunities.

A company has revenues of $170 000,expenses of $45 000 and tax of $37 500.If the company also has a working capital level of $25 000 and the corporate tax rate is 30%,estimate the level of free cash flows for the firm.

Klister Corporation currently pays dividends of $2.75.The current market price of one share in Klister Corporation is $38.If the growth rate is thought to be 7.5%,what is the implied cost of equity capital?

Shares in Anza Ltd are currently trading at a P/E ratio of 17.0.If the current price of Anza Ltd shares is $8.60,what is expected future price of the share?

The Investment Decision

Australian Financial Markets

The International Investment Environment

Financial Management: Derivative Instruments and Information Sources

Money Market Securities

Bonds

Investor Preferences and Portfolio Concepts

Risky Asset Pricing Models and the Capm

Alternative Risky Asset Pricing Models

Concepts and Applications of Market Efficiency

Macro- and Industry Analysis of Share Markets

Qualitative Stock Selection

Quantitative Company Analysis

Futures and Forward Contracts

Option Contracts

Advanced Issues in Options

Alternative Investments

Portfolio Management

Performance Evaluation of Managed Funds

Filters

Exam 11: Equity Valuation Models

The asset backing model of valuation operates by assuming the company is solvent and able to continue as an ongoing concern.

Annie's Donut Shops,Inc. ,has just paid a dividend of $3.The firm's ROE is 18%,and its earnings retention ratio is 60%.If the firm's cost of capital is 12%,what is the value of the firm excluding any growth opportunities?

The correct price of a share with a cost of capital of 25% p.a.that pays $0.28 p.a.dividends in perpetuity is:

The dividend payout ratio of a firm is 40%.If the cost of equity capital for the firm is 10% p.a.and the corporate tax rate is 30%,calculate the plowback ratio.

The market capitalisation rate on the stock of Aberdeen Wholesale Company is 10%.Its expected ROE is 12%,and its expected EPS is $5.If the firm's plowback ratio is 50%,its P/E ratio will be _________.

The constant-growth dividend discount model (DDM)can be used only when the ___________.

The cost of equity capital for a firm can be estimated using an asset pricing model.

The price of a security is set by:

Company ABC currently pays annual dividends of $0.40,and growth of these dividends is expected to be at 5% p.a.Given a cost of equity capital of 10%,what is the estimated current share price of ABC?

The horizon value is the project life where constant growth is assumed.

Musters Ltd currently pays a dividend of $0.76.One share in Musters Ltd currently costs $14.25.Given a cost of equity capital of 9%,what is the implied constant growth rate?

If a company with a share price of $6 has earnings per share of $0.15,calculate the cost of capital for the firm.

If a share is trading above its P/E multiplier,then it is trading at a discount.

If the value of an asset is more than its price,then the asset is said to be overpriced.

MSB Ltd has a current share price of $14.55.If MSB has a constant expected growth rate of 5% and is expected to pay a dividend of $0.65 per share,what is MSB's cost of capital?

In the earnings capitalisation model,defining growth involves using the zero growth model,and then subtracting the present value of the growth opportunities.

A company has revenues of $170 000,expenses of $45 000 and tax of $37 500.If the company also has a working capital level of $25 000 and the corporate tax rate is 30%,estimate the level of free cash flows for the firm.

Klister Corporation currently pays dividends of $2.75.The current market price of one share in Klister Corporation is $38.If the growth rate is thought to be 7.5%,what is the implied cost of equity capital?

Shares in Anza Ltd are currently trading at a P/E ratio of 17.0.If the current price of Anza Ltd shares is $8.60,what is expected future price of the share?

The Investment Decision

Australian Financial Markets

The International Investment Environment

Financial Management: Derivative Instruments and Information Sources

Money Market Securities

Bonds

Investor Preferences and Portfolio Concepts

Risky Asset Pricing Models and the Capm

Alternative Risky Asset Pricing Models

Concepts and Applications of Market Efficiency

Macro- and Industry Analysis of Share Markets

Qualitative Stock Selection

Quantitative Company Analysis

Futures and Forward Contracts

Option Contracts

Advanced Issues in Options

Alternative Investments

Portfolio Management

Performance Evaluation of Managed Funds

Filters