Question 1

Which of the following statements concerning the valuation of firms using the method of comparables is FALSE?

Accepted Answer

A)  If two different firms generate identical cash flows, the Law of One Price will imply that both firms have the same value. 
B)  Comparables adjust for scale differences when valuing similar firms. 
C)  Valuation multiples take into account differences in the risk and future growth between the firms being compared. 
D)  Two firms that sell very similar products or offer very similar services will have different values if they are of different sizes. 
A)  If two different firms generate identical cash flows, the Law of One Price will imply that both firms have the same value. 
B)  Comparables adjust for scale differences when valuing similar firms. 
C)  Valuation multiples take into account differences in the risk and future growth between the firms being compared. 
D)  Two firms that sell very similar products or offer very similar services will have different values if they are of different sizes.

Question 2

Use the table for the question(s) below.
  
-The table above shows the stock prices and multiples for a number of firms in the newspaper publishing industry. Another newspaper publishing firm (not shown) had sales of $600 million, EBITDA of $84 million, excess cash of $68 million, $18 million of debt, and 120 million shares outstanding. If the average enterprise value to sales for comparable businesses is used, which of the following is the best estimate of the firm's share price?

Accepted Answer

A)  $6.45 
B)  $7.20 
C)  $7.17 
D)  $7.53 
A)  $6.45 
B)  $7.20 
C)  $7.17 
D)  $7.53

Question 3

Which of the following is the best statement of the efficient markets hypothesis?

Accepted Answer

A)  Investors with information that a stock had a positive net present value (NPV) will buy it, while investors with information that a stock had a negative net present value (NPV) will sell it. 
B)  Investor's decisions are dependent on complete current information of a firm's cash flows and accurate predictions of future cash flows. 
C)  Competition between investors works to make the net present value (NPV) of all trading opportunities zero. 
D)  A share's price is the aggregate of the information of many investors. 
A)  Investors with information that a stock had a positive net present value (NPV) will buy it, while investors with information that a stock had a negative net present value (NPV) will sell it. 
B)  Investor's decisions are dependent on complete current information of a firm's cash flows and accurate predictions of future cash flows. 
C)  Competition between investors works to make the net present value (NPV) of all trading opportunities zero. 
D)  A share's price is the aggregate of the information of many investors.

Question 4

Which of the following statements is FALSE?

Accepted Answer

A)  The more cash a firm uses to repurchase shares, the less it has available to pay dividends. 
B)  Free cash flow measures the cash generated by a firm after payments to debt or equity holders are considered. 
C)  We estimate a firm's current enterprise value by computing the present value (PV) of the firm's free cash flow. 
D)  We can interpret the enterprise value of a firm as the net cost of acquiring the firm's equity, taking its cash, and paying off all debts. 
A)  The more cash a firm uses to repurchase shares, the less it has available to pay dividends. 
B)  Free cash flow measures the cash generated by a firm after payments to debt or equity holders are considered. 
C)  We estimate a firm's current enterprise value by computing the present value (PV) of the firm's free cash flow. 
D)  We can interpret the enterprise value of a firm as the net cost of acquiring the firm's equity, taking its cash, and paying off all debts.

Question 5

Disposition effect is the tendency of individual investors to ________.

Accepted Answer

A)  trade too much based on the mistaken belief that they can pick winners and losers better than investment professionals 
B)  buy stocks that have been in the news, advertised more, have very high trading volume, or recently had extreme (high or low) returns 
C)  put too much weight on their own experience rather than considering historical evidence 
D)  hold on to stocks that have lost value and sell stocks that have risen in value since the time of purchase 
A)  trade too much based on the mistaken belief that they can pick winners and losers better than investment professionals 
B)  buy stocks that have been in the news, advertised more, have very high trading volume, or recently had extreme (high or low) returns 
C)  put too much weight on their own experience rather than considering historical evidence 
D)  hold on to stocks that have lost value and sell stocks that have risen in value since the time of purchase

Question 6

Several methods should be used to provide an estimate of a stock's value since no single method provides a definitive value.

Accepted Answer

A) True 
 B)False

Which of the following statements concerning the valuation of firms using the method of comparables is FALSE?

Which of the following is the best statement of the efficient markets hypothesis?

Which of the following statements is FALSE?

Disposition effect is the tendency of individual investors to ________.

Several methods should be used to provide an estimate of a stock's value since no single method provides a definitive value.

Corporate Finance and the Financial Manager

Introduction to Financial Statement Analysis

Time Value of Money: an Introduction

Time Value of Money: Valuing Cash Flow Streams

Interest Rates

Bonds

Stock Valuation

Investment Decision Rules

Fundamentals of Capital Budgeting

Risk and Return in Capital Markets

Systematic Risk and the Equity Risk Premium

The Cost of Capital

Raising Equity Capital

Debt Financing

Capital Structure

Payout Policy

Financial Modeling and Pro Forma Analysis

Working Capital Management

Short-Term Financial Planning

Option Applications and Corporate Finance

Mergers and Acquisitions

International Corporate Finance

Leasing

Insurance and Risk Management

Corporate Governance

Filters

Exam 10: Stock Valuation: a Second Look

Which of the following statements concerning the valuation of firms using the method of comparables is FALSE?

Which of the following is the best statement of the efficient markets hypothesis?

Which of the following statements is FALSE?

Disposition effect is the tendency of individual investors to ________.

Several methods should be used to provide an estimate of a stock's value since no single method provides a definitive value.

Corporate Finance and the Financial Manager

Introduction to Financial Statement Analysis

Time Value of Money: an Introduction

Time Value of Money: Valuing Cash Flow Streams

Interest Rates

Bonds

Stock Valuation

Investment Decision Rules

Fundamentals of Capital Budgeting

Risk and Return in Capital Markets

Systematic Risk and the Equity Risk Premium

The Cost of Capital

Raising Equity Capital

Debt Financing

Capital Structure

Payout Policy

Financial Modeling and Pro Forma Analysis

Working Capital Management

Short-Term Financial Planning

Option Applications and Corporate Finance

Mergers and Acquisitions

International Corporate Finance

Leasing

Insurance and Risk Management

Corporate Governance

Filters