Question 1

Over the life of the firm,the present value of ______________________________,______________________________,and ____________________ will be the same.

Accepted Answer

future earnings,cash flows,dividends

Question 2

Required earnings are the:

Accepted Answer

A)  adjusted net income multiplied by the required rate of return on common equity capital. 
B)  net income the analyst expects the firm to generate multiplied by the required rate of return on common equity capital. 
C)  the market value of common equity capital at the beginning of the period multiplied by the required rate of return on common equity capital. 
D)  the book value of common equity capital at the beginning of the period multiplied by the required rate of return on common equity capital. 
A)  adjusted net income multiplied by the required rate of return on common equity capital. 
B)  net income the analyst expects the firm to generate multiplied by the required rate of return on common equity capital. 
C)  the market value of common equity capital at the beginning of the period multiplied by the required rate of return on common equity capital. 
D)  the book value of common equity capital at the beginning of the period multiplied by the required rate of return on common equity capital. D

Question 3

Accounting earnings numbers provide a basis for valuation because earnings are the primary measure of ______________________________ produced by the accrual accounting system.

Accepted Answer

firm performance

Question 4

The residual income _____________________________ valuation model uses __________________ and the book value of common shareholders' equity as the basis for valuation.

Accepted Answer

expected f

Question 5

At the beginning of 2012 investors had invested $125,000 of common equity in Jan Corp.and expect to earn a return of 15% per year.In addition,investors expect Jan Corp.to pay out 100% of income in dividends each year.Forecasts of Jan's net income are as follows: 2012 - $41,000
2013 - $35,400
2014 - $33,200
2015 and beyond - $25,000
Using this information,what is Jan's residual income valuation at the beginning of 2012?

Accepted Answer

A)  $125,000 
B)  $184,600 
C)  $190,262 
D)  $260,415 
A)  $125,000 
B)  $184,600 
C)  $190,262 
D)  $260,415

Question 6

Residual income valuation focuses on ____________________ as a periodic measure of shareholder wealth creation.

Accepted Answer

The answer of Residual income valuation focuses on ____________________ as...

Question 7

To measure a firm's economic performance and position in a given period,it makes sense to measure all of the following except:

Accepted Answer

A)  The daily free cash flow published by the Wall Street Journal 
B)  Expenses incurred for resources consumed in that period 
C)  A portion of the long-lived resources consumed during that period 
D)  The cost of commitments made during that period to pay retirement benefits to employees in future periods 
A)  The daily free cash flow published by the Wall Street Journal 
B)  Expenses incurred for resources consumed in that period 
C)  A portion of the long-lived resources consumed during that period 
D)  The cost of commitments made during that period to pay retirement benefits to employees in future periods

Question 8

Clean surplus accounting for most common stock transactions holds for shares accounted for at market value.An exception to this is:

Accepted Answer

A)  issuance of common equity shares for employee stock options exercises. 
B)  repurchase of common shares. 
C)  issuance of common shares to new shareholders in public exchanges. 
D)  None of these. 
A)  issuance of common equity shares for employee stock options exercises. 
B)  repurchase of common shares. 
C)  issuance of common shares to new shareholders in public exchanges. 
D)  None of these.

Question 9

Jarrett Corp.
At the end of 2010 Jarrett Corp.developed the following forecasts of net income:
   Management believes that after 2015 Jarrett will grow at a rate of 7% each year.Total common shareholders' equity was $112,768 on December 31,2010.Jarrett has not established a dividend and does not plan to paying dividends during 2011 to 2015.Its cost of equity capital is 12%.
-Compute the value of Jarrett Corp.on January 1,2011,using the residual income valuation model.Use the half-year adjustment.

Accepted Answer

A)  $112,768 
B)  $185,329 
C)  $195,540 
D)  $133,624 
A)  $112,768 
B)  $185,329 
C)  $195,540 
D)  $133,624

Question 10

In theory,all three valuation models,when correctly implemented with internally consistent assumptions,will produce the same estimates of value.However,in practice,which of the following errors can result in different value estimates?

Accepted Answer

A)  Incomplete or inconsistent earnings and cash flow forecasts 
B)  Inconsistent estimates of weighted average costs of capital 
C)  Incorrect continuing value computations 
D)  All of these errors result in different value estimates. 
A)  Incomplete or inconsistent earnings and cash flow forecasts 
B)  Inconsistent estimates of weighted average costs of capital 
C)  Incorrect continuing value computations 
D)  All of these errors result in different value estimates.

Question 11

Assume that a firm had shareholders' equity on the balance sheet at a book value of $1,500 at the end of 2010.During 2011 the firm earns net income of $1,900,pays dividends to shareholders of $200,and issues new stock to raise $500 of capital.The book value of shareholders' equity at the end of 2011 is:

Accepted Answer

A)  $2,750 
B)  $250 
C)  $1,450 
D)  $3,700 
A)  $2,750 
B)  $250 
C)  $1,450 
D)  $3,700

Question 12

Todd Corp.manufactures train components.On January 1,2011,management provided the following forecast of income for the next five years:
   Thomas' common shareholders' equity was $422,174 on January 1,2011.The firm does not expect to pay a dividend during the 2011-2015 period.Thomas' cost of equity capital is 11 percent.
Required:
Compute the value of Todd Company on January 1,2011,using the residual income valuation model and the half year convention.T.Harp,the CEO of Todd,expects net income to grow at a rate of 6 percent annually after 2015.

Accepted Answer

The answer of Todd Corp.manufactures train components.On January 1,2011,management provided...

Question 13

Accounting for the residual income in a firm with 100% dividend payout can be expressed as follows:
RIt = CIt- ____________________ X BVt-1

Accepted Answer

Question 14

Accounting principles make accrual accounting earnings closer to the firm's underlying economic performance in a given period than are _________________________.

Accepted Answer

The answer of Accounting principles make accrual accounting earnings closer...

Question 15

__________________ means that net income includes all of the recognized elements of income of the firm for common equity shareholders and dividends include all direct capital transactions between the firm and the common equity shareholders.

Accepted Answer

Clean surp

Question 16

Explain residual income.What does residual income represent? What does residual income measure?

Accepted Answer

Residual income measures the differentia

Question 17

Which of the following is probably the least likely reason for acquirers to pay too much in an acquisition?

Accepted Answer

A)  Overbidding 
B)  Over optimistic appraisal of market potential 
C)  Over estimation of synergies 
D)  Overuse of conventional financial statements 
A)  Overbidding 
B)  Over optimistic appraisal of market potential 
C)  Over estimation of synergies 
D)  Overuse of conventional financial statements

Question 18

Assume that a firm's book value at the beginning of the year is $17,800 and that the firm reports net income of $6,200.If the firm's book value at the end of the year is $20,000 what was the amount of dividends paid during the year?

Accepted Answer

A)  $4,000 
B)  $8,800 
C)  $2,200 
D)  Insufficient information to determine 
A)  $4,000 
B)  $8,800 
C)  $2,200 
D)  Insufficient information to determine

Question 19

Over sufficiently long periods,_________________________ equals free cash flows to common equity.

Accepted Answer

The answer of Over sufficiently long periods,_________________________ equals free cash...

Question 20

Investors have invested $25,000 in common equity in a company.Given the risk inherent in the company the investors expect to earn a 15 percent return.In addition,the investors expect the company to return all income to investors in the form of dividends.The company is forecasted to earn $4,000 the first year,$5,000 the second year,$4,500 the third year and $3,750 each year after the third year.For this company determine the company's residual income valuation

Accepted Answer

Initial value of shareholders' equity =

Over the life of the firm,the present value of ________,,and will be the same.

Required earnings are the:

Accounting earnings numbers provide a basis for valuation because earnings are the primary measure of ______________________________ produced by the accrual accounting system.

The residual income ___________ valuation model uses and the book value of common shareholders' equity as the basis for valuation.

Residual income valuation focuses on ____________________ as a periodic measure of shareholder wealth creation.

To measure a firm's economic performance and position in a given period,it makes sense to measure all of the following except:

Clean surplus accounting for most common stock transactions holds for shares accounted for at market value.An exception to this is:

In theory,all three valuation models,when correctly implemented with internally consistent assumptions,will produce the same estimates of value.However,in practice,which of the following errors can result in different value estimates?

Accounting for the residual income in a firm with 100% dividend payout can be expressed as follows: RI_t = CI_t- ____________________ X BV_t-1

Accounting principles make accrual accounting earnings closer to the firm's underlying economic performance in a given period than are _________________________.

__________________ means that net income includes all of the recognized elements of income of the firm for common equity shareholders and dividends include all direct capital transactions between the firm and the common equity shareholders.

Explain residual income.What does residual income represent? What does residual income measure?

Which of the following is probably the least likely reason for acquirers to pay too much in an acquisition?

Assume that a firm's book value at the beginning of the year is $17,800 and that the firm reports net income of $6,200.If the firm's book value at the end of the year is $20,000 what was the amount of dividends paid during the year?

Over sufficiently long periods,_________________________ equals free cash flows to common equity.

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: Market-Based Approaches

Filters

Exam 13: Valuation: Earnings-Based Approaches

Over the life of the firm,the present value of ______________________________,______________________________,and ____________________ will be the same.

Required earnings are the:

Accounting earnings numbers provide a basis for valuation because earnings are the primary measure of ______________________________ produced by the accrual accounting system.

The residual income _____________________________ valuation model uses __________________ and the book value of common shareholders' equity as the basis for valuation.

Residual income valuation focuses on ____________________ as a periodic measure of shareholder wealth creation.

To measure a firm's economic performance and position in a given period,it makes sense to measure all of the following except:

Clean surplus accounting for most common stock transactions holds for shares accounted for at market value.An exception to this is:

In theory,all three valuation models,when correctly implemented with internally consistent assumptions,will produce the same estimates of value.However,in practice,which of the following errors can result in different value estimates?

Accounting for the residual income in a firm with 100% dividend payout can be expressed as follows: RIt = CIt- ____________________ X BVt-1

Accounting principles make accrual accounting earnings closer to the firm's underlying economic performance in a given period than are _________________________.

__________________ means that net income includes all of the recognized elements of income of the firm for common equity shareholders and dividends include all direct capital transactions between the firm and the common equity shareholders.

Explain residual income.What does residual income represent? What does residual income measure?

Which of the following is probably the least likely reason for acquirers to pay too much in an acquisition?

Assume that a firm's book value at the beginning of the year is $17,800 and that the firm reports net income of $6,200.If the firm's book value at the end of the year is $20,000 what was the amount of dividends paid during the year?

Over sufficiently long periods,_________________________ equals free cash flows to common equity.

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: Market-Based Approaches

Filters

Over the life of the firm,the present value of ________,,and will be the same.

The residual income ___________ valuation model uses and the book value of common shareholders' equity as the basis for valuation.

Accounting for the residual income in a firm with 100% dividend payout can be expressed as follows: RI_t = CI_t- ____________________ X BV_t-1