Question 1

Which of the following is least likely to contribute to going concern value?

Accepted Answer

A) high liquidation value 
B) extra earning power 
C) future investment opportunities 
D) intangible assets 
A) high liquidation value 
B) extra earning power 
C) future investment opportunities 
D) intangible assets

Question 2

What is the expected dividend to Be paid in three years if yesterday's dividend was $6.00, dividends are expected to grow at a constant 6 percent annual rate, and the firm has a 10 percent expected return?

Accepted Answer

A) $6.75 
B) $7.15 
C) $7.80 
D) $9.37 
A) $6.75 
B) $7.15 
C) $7.80 
D) $9.37

Question 3

The expected return on a common stock is composed of:

Accepted Answer

A) dividend yield. 
B) capital appreciation. 
C) both dividend yield and capital appreciation. 
D) capital appreciation minus the dividend yield. 
A) dividend yield. 
B) capital appreciation. 
C) both dividend yield and capital appreciation. 
D) capital appreciation minus the dividend yield.

Question 4

What is the current price of a share of stock for a firm with $5 million in balance-sheet equity, 500,000 shares of stock outstanding, and a price/book value ratio of 4? (Use values in dollars)

Accepted Answer

A) $2.50 
B) $10.00 
C) $20.00 
D) $40.00 
A) $2.50 
B) $10.00 
C) $20.00 
D) $40.00

Question 5

What should be the price of a stock that offers a $4 annual dividend with no prospects of growth, and has a required return of 12.5 percent?

Accepted Answer

A) $8.50 
B) $25.00 
C) $32.00 
D) $50.00 
A) $8.50 
B) $25.00 
C) $32.00 
D) $50.00

Question 6

A positive value for PRESENT VALUE OF GROWTH OPPORTUNITIES suggests that the firm has:

Accepted Answer

A) a positive return on equity. 
B) a positive plowback ratio. 
C) investment opportunities with superior returns. 
D) a high rate of constant growth. 
A) a positive return on equity. 
B) a positive plowback ratio. 
C) investment opportunities with superior returns. 
D) a high rate of constant growth.

Question 7

Which of the following is least assured for firms that plowback a portion of earnings into the firm?

Accepted Answer

A) growth in earnings per share. 
B) growth in dividends per share. 
C) growth in book value of equity. 
D) growth in stock price. 
A) growth in earnings per share. 
B) growth in dividends per share. 
C) growth in book value of equity. 
D) growth in stock price.

Question 8

Look Good, Inc.has just announced the bad news that its earnings have dropped by 30 percent.In fact, its investors had anticipated even worse results (a decrease of 40 percent).As a result, Look Good's stock price:

Accepted Answer

A) Increases. 
B) Remains the same. 
C) Decreases. 
D) Follows a random walk as usual. 
A) Increases. 
B) Remains the same. 
C) Decreases. 
D) Follows a random walk as usual.

Question 9

Which of the following is a characteristic of a dealer market, rather than auction market, for common stock?

Accepted Answer

A) dealer markets are more likely to be centralized 
B) dealer markets operate as primary, not secondary, markets 
C) dealers may not offer all the same price for the same security 
D) dealer markets specialize in trading income stocks 
A) dealer markets are more likely to be centralized 
B) dealer markets operate as primary, not secondary, markets 
C) dealers may not offer all the same price for the same security 
D) dealer markets specialize in trading income stocks

Question 10

Fundamental analysts attempt to get rich by identifying patterns in stock prices.

Accepted Answer

A) True 
 B)False

Question 11

The liquidation value of a firm is equal to the book value of the firm.

Accepted Answer

A) True 
 B)False

Question 12

Cash dividends are offered to shareholders in lieu of increasing the stock's price.

Accepted Answer

A) True 
 B)False

Question 13

What dividend yield would be reported in the financial press for a stock that currently pays a $1 dividend per quarter and the most recent stock price was $40?

Accepted Answer

A) 2.5 percent 
B) 4.0 percent 
C) 10.0 percent 
D) 15.0 percent 
A) 2.5 percent 
B) 4.0 percent 
C) 10.0 percent 
D) 15.0 percent

Question 14

What should be the current price of a stock if the expected dividend is $5, the stock has a required return of 20 percent, and a constant dividend growth rate of 6 percent?

Accepted Answer

A) $19.23 
B) $25.00 
C) $35.71 
D) $37.86 
A) $19.23 
B) $25.00 
C) $35.71 
D) $37.86

Question 15

If the dividend yield for year one is expected to be 5 percent based on the current price of $25, what will the year four dividend be if dividends grow at a constant 6 percent?

Accepted Answer

A) $1.33 
B) $1.49 
C) $1.58 
D) $1.67 
A) $1.33 
B) $1.49 
C) $1.58 
D) $1.67

Question 16

What rate of return is expected from a stock that sells for $30 per share, pays $1.50 annually in dividends, and is expected to sell for $33 per share in one year?

Accepted Answer

A) 5.00 percent 
B) 10.00 percent 
C) 14.09 percent 
D) 15.00 percent 
A) 5.00 percent 
B) 10.00 percent 
C) 14.09 percent 
D) 15.00 percent

Question 17

The book value of a firm's equity is determined by:

Accepted Answer

A) multiplying share price by shares outstanding. 
B) multiplying share price at issue by shares outstanding. 
C) the difference between book values of assets and liabilities. 
D) the difference between market values of assets and liabilities. 
A) multiplying share price by shares outstanding. 
B) multiplying share price at issue by shares outstanding. 
C) the difference between book values of assets and liabilities. 
D) the difference between market values of assets and liabilities.

Question 18

How much should you pay for a share of stock that offers a constant growth rate of 10 percent, requires a 16 percent rate of return, and is expected to sell for $50 one year from now?

Accepted Answer

A) $42.00 
B) $45.00 
C) $45.45 
D) $47.00 
A) $42.00 
B) $45.00 
C) $45.45 
D) $47.00

Question 19

If the liquidation value of a corporation exceeds the market value of the equity, then the:

Accepted Answer

A) firm has no value as a going concern. 
B) firm's stock will sell for book value. 
C) firm is not taking advantage of available growth opportunities. 
D) dividend payout ratio has been too high. 
A) firm has no value as a going concern. 
B) firm's stock will sell for book value. 
C) firm is not taking advantage of available growth opportunities. 
D) dividend payout ratio has been too high.

Question 20

In a valuation of a non-constant dividend growth stock, the terminal value represents the:

Accepted Answer

A) point at which the present value of future dividends equals zero. 
B) maturity date of the stock. 
C) present value of future dividends from that point onwards. 
D) highest value that the stock will attain. 
A) point at which the present value of future dividends equals zero. 
B) maturity date of the stock. 
C) present value of future dividends from that point onwards. 
D) highest value that the stock will attain.

Exam 7: Valuing Stocks

Which of the following is least likely to contribute to going concern value?

What is the expected dividend to Be paid in three years if yesterday's dividend was $6.00, dividends are expected to grow at a constant 6 percent annual rate, and the firm has a 10 percent expected return?

The expected return on a common stock is composed of:

What is the current price of a share of stock for a firm with $5 million in balance-sheet equity, 500,000 shares of stock outstanding, and a price/book value ratio of 4? (Use values in dollars)

What should be the price of a stock that offers a $4 annual dividend with no prospects of growth, and has a required return of 12.5 percent?

A positive value for PRESENT VALUE OF GROWTH OPPORTUNITIES suggests that the firm has:

Which of the following is least assured for firms that plowback a portion of earnings into the firm?

Look Good, Inc.has just announced the bad news that its earnings have dropped by 30 percent.In fact, its investors had anticipated even worse results (a decrease of 40 percent).As a result, Look Good's stock price:

Which of the following is a characteristic of a dealer market, rather than auction market, for common stock?

Fundamental analysts attempt to get rich by identifying patterns in stock prices.

The liquidation value of a firm is equal to the book value of the firm.

Cash dividends are offered to shareholders in lieu of increasing the stock's price.

What dividend yield would be reported in the financial press for a stock that currently pays a $1 dividend per quarter and the most recent stock price was $40?

What should be the current price of a stock if the expected dividend is $5, the stock has a required return of 20 percent, and a constant dividend growth rate of 6 percent?

If the dividend yield for year one is expected to be 5 percent based on the current price of $25, what will the year four dividend be if dividends grow at a constant 6 percent?

What rate of return is expected from a stock that sells for $30 per share, pays $1.50 annually in dividends, and is expected to sell for $33 per share in one year?

The book value of a firm's equity is determined by:

How much should you pay for a share of stock that offers a constant growth rate of 10 percent, requires a 16 percent rate of return, and is expected to sell for $50 one year from now?

If the liquidation value of a corporation exceeds the market value of the equity, then the:

In a valuation of a non-constant dividend growth stock, the terminal value represents the:

Goals and Governance of the Firm

Financial Markets and Institutions

Accounting and Finance

Measuring Corporate Performance

The Time Value of Money

Valuing Bonds

Net Present Value and Other Investment Criteria

Using Discounted Cash Flow Analysis to Make Investment Decisions

Project Analysis

Introduction to Risk, Return, and the Opportunity Cost of Capital

Risk, Return, and Capital Budgeting

The Weighted-Average Cost of Capital and Company Valuation

Introduction to Corporate Financing and Governance

Venture Capital, Ipos, and Seasoned Offerings

Debt Policy

Leasing

Payout Policy

Long-Term Financial Planning

Short-Term Financial Planning

Cash and Inventory Management

Credit Management and Collection

Mergers, Acquisitions, and Corporate Control

International Financial Management

Options

Risk Management

Filters