Question 1

Firms with low P/E ratios tend to have current residual income that is greater than:

Accepted Answer

A)  future actual income. 
B)  future residual income. 
C)  past actual income. 
D)  past residual income. 
A)  future actual income. 
B)  future residual income. 
C)  past actual income. 
D)  past residual income. B

Question 2

Companies value-to-book and market-to-book ratios may differ due to accounting reasons.An example of an accounting reason that would create a difference is:

Accepted Answer

A)  accelerated methods of depreciation. 
B)  investments in successful research and development programs that are expensed according to conservative accounting principles. 
C)  using LIFO versus FIFO for inventory. 
D)  high operating leverage. 
A)  accelerated methods of depreciation. 
B)  investments in successful research and development programs that are expensed according to conservative accounting principles. 
C)  using LIFO versus FIFO for inventory. 
D)  high operating leverage. B

Question 3

The theoretical PE model does not work when the growth rate in ____________________ exceeds the cost of equity capital.

Accepted Answer

earnings

Question 4

All of the following are economic factors that can cause a firm's price-earnings ratio to be higher than that of other firms in the same industry except:

Accepted Answer

A)  when investors expect that the firm's strategy enables it to generate and sustain greater profitability for a given cost of equity capital 
B)  when the firm earns the same profitability but with lower risk and,therefore,a lower cost of equity capital 
C)  a firm's business model that enables it to generate faster growth in earnings provided the growth creates positive residual ROCE 
D)  a firm's business model that results in slower growth in earnings and this creates negative residual ROCE 
A)  when investors expect that the firm's strategy enables it to generate and sustain greater profitability for a given cost of equity capital 
B)  when the firm earns the same profitability but with lower risk and,therefore,a lower cost of equity capital 
C)  a firm's business model that enables it to generate faster growth in earnings provided the growth creates positive residual ROCE 
D)  a firm's business model that results in slower growth in earnings and this creates negative residual ROCE

Question 5

Which of the following ratios give a perspective on risk in the capital structure?

Accepted Answer

A)  Book value per share 
B)  Price/earnings ratio 
C)  Degree of financial leverage 
D)  Dividend yield 
A)  Book value per share 
B)  Price/earnings ratio 
C)  Degree of financial leverage 
D)  Dividend yield

Question 6

Under the value-to-book model new projects will be less profitable only when:

Accepted Answer

A)  ROCE equals ROA 
B)  ROCE equals RE 
C)  ROCE is greater than RE 
D)  ROCE is less than RE 
A)  ROCE equals ROA 
B)  ROCE equals RE 
C)  ROCE is greater than RE 
D)  ROCE is less than RE

Question 7

What is the value of reverse engineering stock prices? How does the process work?

Accepted Answer

The process allows the analyst to infer

Question 8

The value-to-book ratio reflects an analyst's expectation of the firm's ____________________ value to book value.

Accepted Answer

The answer of The value-to-book ratio reflects an analyst's expectation...

Question 9

Assuming that Ska Company's cost of equity capital is 14% and it expects to grow earnings at a rate of 8% per year,we would expect Ska's P/E ratio to be:

Accepted Answer

A)  8 
B)  16.7 
C)  14 
D)  4.5 
A)  8 
B)  16.7 
C)  14 
D)  4.5

Question 10

A firm's value-to-book and market-to-book ratios may differ from one for a number of reasons.Discuss how a successful,internally funded research and development program would create a situation where the value-to-book and market-to-book ratios differ from one another.

Accepted Answer

Because research and development activit

Question 11

Studies have shown that 50-70% of the variability in PE ratios across firms comes from ________ and _______.

Accepted Answer

risk,growt

Question 12

The differences in industry market-to-book ratios may be the result of differences in growth,ROCE relative to RE,as well as differences in _______________________________________________________.

Accepted Answer

alternativ

Question 13

In research examining market efficiency,Bernard and Thomas examined quarterly earnings announcements.Discuss how Bernard and Thomas test the issue of market efficiency and the results of their research.

Accepted Answer

Bernard and Thomas examined market effic

Question 14

A company is expected to have a value of $142,857 at the start of next period and investors require a 14 percent return on equity capital.Using the assumptions of the price-earnings ratio,what would be the company's earnings for the current year?

Accepted Answer

A)  $20,000 
B)  $14,286 
C)  $2,800 
D)  $12,500 
A)  $20,000 
B)  $14,286 
C)  $2,800 
D)  $12,500

Question 15

Which of the following would not be an example of the use of a multiple when valuing common equity?

Accepted Answer

A)  Price-to-operating cash flow 
B)  Price-to-book. 
C)  Price-to-earnings. 
D)  Multi-period discounted earnings models. 
A)  Price-to-operating cash flow 
B)  Price-to-book. 
C)  Price-to-earnings. 
D)  Multi-period discounted earnings models.

Question 16

Investors have invested $30,000 in common equity in a company.The investors expect that the company will reinvest all income back into projects.The company is forecasted to earn $7,000 the first year,$6,000 the second year,$5,750 the third year,and $6,442 each year after the third year.The company's current stock price is $18 per share.Assuming that the company has 4,300 shares outstanding and the risk-free rate of interest is 7%,calculate the price differential for this company.

Accepted Answer

The answer of Investors have invested $30,000 in common equity...

Question 17

Trading on the equity is likely to be a good financial strategy for stockholders of companies having:

Accepted Answer

A)  Cyclically high and low amounts of reported earnings. 
B)  Steadily declining amounts of reported earnings. 
C)  Volatile fluctuations in reported earnings over short periods of time. 
D)  Steady amounts of reported earnings. 
A)  Cyclically high and low amounts of reported earnings. 
B)  Steadily declining amounts of reported earnings. 
C)  Volatile fluctuations in reported earnings over short periods of time. 
D)  Steady amounts of reported earnings.

Question 18

Assume an analyst is evaluating a firm with $1,000 of book value of common equity and a cost of equity capital equal to 8 percent.Assume that the analyst forecasts that the firm will earn ROCE of 14 percent until year 2016,when the firm will start earning ROCE equal to 8 percent.The company pays no dividends and will not engage in any stock transactions.Use this information to complete the following table and calculate the firm's value-to-book ratio.

Accepted Answer

The answer of Assume an analyst is evaluating a firm...

Question 19

Industries with relatively high market-to-book ratios are more likely to have ___________________________________ assets.

Accepted Answer

The answer of Industries with relatively high market-to-book ratios are...

Question 20

Valuation using market multiples captures:

Accepted Answer

A)  absolute valuation per dollar of book value or per dollar of earnings. 
B)  dollar of book value or dollar of earnings per dollar of common equity. 
C)  relative valuation per dollar of book value or per dollar of earnings. 
D)  intrinsic valuation per dollar of book value or per dollar of earnings. 
A)  absolute valuation per dollar of book value or per dollar of earnings. 
B)  dollar of book value or dollar of earnings per dollar of common equity. 
C)  relative valuation per dollar of book value or per dollar of earnings. 
D)  intrinsic valuation per dollar of book value or per dollar of earnings.

Firms with low P/E ratios tend to have current residual income that is greater than:

Companies value-to-book and market-to-book ratios may differ due to accounting reasons.An example of an accounting reason that would create a difference is:

The theoretical PE model does not work when the growth rate in ____________________ exceeds the cost of equity capital.

All of the following are economic factors that can cause a firm's price-earnings ratio to be higher than that of other firms in the same industry except:

Which of the following ratios give a perspective on risk in the capital structure?

Under the value-to-book model new projects will be less profitable only when:

What is the value of reverse engineering stock prices? How does the process work?

The value-to-book ratio reflects an analyst's expectation of the firm's ____________________ value to book value.

Assuming that Ska Company's cost of equity capital is 14% and it expects to grow earnings at a rate of 8% per year,we would expect Ska's P/E ratio to be:

A firm's value-to-book and market-to-book ratios may differ from one for a number of reasons.Discuss how a successful,internally funded research and development program would create a situation where the value-to-book and market-to-book ratios differ from one another.

Studies have shown that 50-70% of the variability in PE ratios across firms comes from __ and _.

The differences in industry market-to-book ratios may be the result of differences in growth,ROCE relative to R_E,as well as differences in _______________________________________________________.

In research examining market efficiency,Bernard and Thomas examined quarterly earnings announcements.Discuss how Bernard and Thomas test the issue of market efficiency and the results of their research.

A company is expected to have a value of $142,857 at the start of next period and investors require a 14 percent return on equity capital.Using the assumptions of the price-earnings ratio,what would be the company's earnings for the current year?

Which of the following would not be an example of the use of a multiple when valuing common equity?

Trading on the equity is likely to be a good financial strategy for stockholders of companies having:

Industries with relatively high market-to-book ratios are more likely to have ___________________________________ assets.

Valuation using market multiples captures:

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: Earnings-Based Approaches

Filters

Exam 14: Valuation: Market-Based Approaches

Firms with low P/E ratios tend to have current residual income that is greater than:

Companies value-to-book and market-to-book ratios may differ due to accounting reasons.An example of an accounting reason that would create a difference is:

The theoretical PE model does not work when the growth rate in ____________________ exceeds the cost of equity capital.

All of the following are economic factors that can cause a firm's price-earnings ratio to be higher than that of other firms in the same industry except:

Which of the following ratios give a perspective on risk in the capital structure?

Under the value-to-book model new projects will be less profitable only when:

What is the value of reverse engineering stock prices? How does the process work?

The value-to-book ratio reflects an analyst's expectation of the firm's ____________________ value to book value.

Assuming that Ska Company's cost of equity capital is 14% and it expects to grow earnings at a rate of 8% per year,we would expect Ska's P/E ratio to be:

A firm's value-to-book and market-to-book ratios may differ from one for a number of reasons.Discuss how a successful,internally funded research and development program would create a situation where the value-to-book and market-to-book ratios differ from one another.

Studies have shown that 50-70% of the variability in PE ratios across firms comes from ________ and _______.

The differences in industry market-to-book ratios may be the result of differences in growth,ROCE relative to RE,as well as differences in _______________________________________________________.

In research examining market efficiency,Bernard and Thomas examined quarterly earnings announcements.Discuss how Bernard and Thomas test the issue of market efficiency and the results of their research.

A company is expected to have a value of $142,857 at the start of next period and investors require a 14 percent return on equity capital.Using the assumptions of the price-earnings ratio,what would be the company's earnings for the current year?

Which of the following would not be an example of the use of a multiple when valuing common equity?

Trading on the equity is likely to be a good financial strategy for stockholders of companies having:

Industries with relatively high market-to-book ratios are more likely to have ___________________________________ assets.

Valuation using market multiples captures:

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: Earnings-Based Approaches

Filters

Studies have shown that 50-70% of the variability in PE ratios across firms comes from __ and _.

The differences in industry market-to-book ratios may be the result of differences in growth,ROCE relative to R_E,as well as differences in _______________________________________________________.