Exam 20: Mergers

A company is expected to maintain a payout ratio of 50 per cent of earnings. The appropriate discount rate for this risk class is 15 per cent and the expected growth rate in earnings and dividends is 6 per cent. What is the PER?

What is the key difference between historical PER and prospective PER?

What is meant by the term 'intrinsic value' for shares?

Which of the income valuation models is based on the premise that the market value of ordinary shares represents the sum of the expected future dividend flows, to infinity, discounted to present value?

Which two of the following statements accurately explain why the companies described cannot easily be valued using income- flow- based methods?

Control over a firm permits the possibility of changing the future cash flows. Which two of the following are possible results of achieving control on a target company?

Which of the following is a key assumption of income- flow valuation methods of share valuation?

What is the focus of income- flow valuation methods?

Which three of the statements describe problems with dividend valuation models?

Based on Warren Buffett's definition of owner earnings, what are the two types of investment?

What is the key premise of the dividend growth method of share valuation?

Why does the stock market often fall after 'good' economic news?

What is the key difference between Historical PER and Prospective PER?

Based on the dividend growth model, what price should an investor pay for a share with average annual growth 4 per cent in the future in which the initial dividend is 40p, and the rate of return for the risk class is 10 per cent?

In which three of the following situations are asset values particularly useful?

Which of the following best describes typical share prices (in relation to PER) for unquoted firms, as compared with prices for quoted firms?

How does the growth rate of the average corporations as a whole compare with real GDP plus inflation?

In which situation is it justifiable to use the formula P C1 ? kE - gc

When finding crude PER, the valuer makes certain assumptions, one being that valuation P0 consists of two parts. What are the two parts?

Control over a firm permits the possibility of changing the future cash flows. What is the likely result of a high level of control on share price?