Exam 11: Risk-Adjusted Expected Rates of Return and the Dividends Valuation Approach

Explain the theory behind the dividends valuation approach.Why are dividends value-relevant to common equity shareholders?

(Essay)

4.7/5

(39)

Question 21

With respect to dividends and priority in liquidation,what has priority over common stock?

(Multiple Choice)

4.7/5

(34)

Question 22

Shady Sunglasses operates retail sunglass kiosks in shopping malls.Below is information related to the company: Using the above information and assuming that steady-state growth in year 2017 and beyond will be 4% calculate Shady Sunglasses value per share.

(Essay)

4.9/5

(27)

Question 23

According to the text,dividends are value-relevant even though the firm's dividend policy is irrelevant.How can that be true? What is the key assumption in the theory of dividend policy irrelevance?

(Essay)

4.8/5

(27)

Question 24

Zonk Corp. The following data pertains to Zonk Corp. ,a manufacturer of ball bearings (dollar amounts in millions): -Assuming that riskless rate is 4.6% and the market premium is 7.3%,calculate Zonk's cost of equity capital:

(Multiple Choice)

4.9/5

(31)

Question 25

Equity-based valuation models are based on all metrics except:

(Multiple Choice)

4.8/5

(27)

Question 26

Zonk Corp. The following data pertains to Zonk Corp. ,a manufacturer of ball bearings (dollar amounts in millions): -Determine the weight on debt capital that should be used to calculate Zonk's weighted-average cost of capital:

(Multiple Choice)

4.9/5

(35)

Question 27

If dividend projections include the effect of inflation,then the discount rate used should be a(n)____________________ rate.

(Short Answer)

4.8/5

(40)

Question 28

Because the market equity beta reflects the level of operating leverage,financial leverage,variability of sales,and other characteristics of a firm,there are situations where an analyst might have to adjust the beta because of changes in the capital structure.A situation that might require an analyst to estimate a new levered beta is a(n)___________________________________.

(Short Answer)

4.7/5

(44)

Question 29

If a firm has a market beta of 0.9,is subject to an income tax rate of 35 percent,has a risk-free rate of 6 percent,a market risk premium of 7 percent,and has a market value of debt to market value of equity ratio of 60 percent,what does the market expect the firm to generate in terms of equity returns using CAPM?

(Multiple Choice)

4.8/5

(33)

Question 30

Why are dividends value-relevant to common equity shareholders?

(Essay)

4.9/5

(27)

Question 31

Assume that Zonk is a potential leveraged buyout candidate.Assume that the buyer intends to put in place a capital structure that has 70 percent debt with a pretax borrowing cost of 14 percent and 30 percent common equity.Compute the weighted average cost of capital for Zonk based on the new capital structure.

(Multiple Choice)

4.8/5

(37)

Question 32

Returns on systematic risk-free securities (like U.S.Treasury securities)should exhibit what type of correlation with returns on a diversified market wide portfolio of stocks?

(Multiple Choice)

4.8/5

(40)

Question 33

When deriving the equity value of a firm,an analyst forecasts the real dividends expected to be paid in the future.In this case,which discount rate should be used?

(Multiple Choice)

4.9/5

(32)

Question 34

Implementing a dividend valuation model to determine the value of the common shareholders' equity requires an analyst to measure three elements.What are the three elements that the analyst needs to measure?

(Essay)

4.9/5

(42)

Question 35

Explain why analysts and investors use risk-adjusted expected rates of return as discount rates in valuation.Why do risk-adjusted expected rates of return increase with risk?

(Essay)

4.8/5

(43)

Question 36

The dividends valuation approach measures value-relevant dividends to encompass various transactions between the firm and the common shareholders.What transactions should the analyst include in value-relevant dividends for purposes of implementing the dividends valuation model? Why?

(Essay)

4.9/5

(39)

Question 37

Equity valuation models based on dividends,cash flows,and earnings have been the topic of many theoretical and empirical research studies in recent years.All of the following are true regarding these studies except:

(Multiple Choice)

4.7/5

(35)

Question 38

One criticism in using the CAPM to calculate the cost of equity capital is that and the ____________________ are quite sensitive to the time period and methodology used in their computation.

(Short Answer)

4.8/5

(39)

Question 39

Zonk Corp. The following data pertains to Zonk Corp. ,a manufacturer of ball bearings (dollar amounts in millions): -Determine the weight on equity capital that should be used to calculate Zonk's weighted-average cost of capital:

(Multiple Choice)

4.8/5

(42)

Question 40

Showing 21 - 40 of 47

Explain the theory behind the dividends valuation approach.Why are dividends value-relevant to common equity shareholders?

With respect to dividends and priority in liquidation,what has priority over common stock?

Shady Sunglasses operates retail sunglass kiosks in shopping malls.Below is information related to the company: Using the above information and assuming that steady-state growth in year 2017 and beyond will be 4% calculate Shady Sunglasses value per share.

According to the text,dividends are value-relevant even though the firm's dividend policy is irrelevant.How can that be true? What is the key assumption in the theory of dividend policy irrelevance?

Zonk Corp. The following data pertains to Zonk Corp. ,a manufacturer of ball bearings (dollar amounts in millions): -Assuming that riskless rate is 4.6% and the market premium is 7.3%,calculate Zonk's cost of equity capital:

Equity-based valuation models are based on all metrics except:

Zonk Corp. The following data pertains to Zonk Corp. ,a manufacturer of ball bearings (dollar amounts in millions): -Determine the weight on debt capital that should be used to calculate Zonk's weighted-average cost of capital:

If dividend projections include the effect of inflation,then the discount rate used should be a(n)____________________ rate.

Why are dividends value-relevant to common equity shareholders?

Returns on systematic risk-free securities (like U.S.Treasury securities)should exhibit what type of correlation with returns on a diversified market wide portfolio of stocks?

When deriving the equity value of a firm,an analyst forecasts the real dividends expected to be paid in the future.In this case,which discount rate should be used?

Implementing a dividend valuation model to determine the value of the common shareholders' equity requires an analyst to measure three elements.What are the three elements that the analyst needs to measure?

Explain why analysts and investors use risk-adjusted expected rates of return as discount rates in valuation.Why do risk-adjusted expected rates of return increase with risk?

The dividends valuation approach measures value-relevant dividends to encompass various transactions between the firm and the common shareholders.What transactions should the analyst include in value-relevant dividends for purposes of implementing the dividends valuation model? Why?

Equity valuation models based on dividends,cash flows,and earnings have been the topic of many theoretical and empirical research studies in recent years.All of the following are true regarding these studies except:

One criticism in using the CAPM to calculate the cost of equity capital is that and the ____________________ are quite sensitive to the time period and methodology used in their computation.

Zonk Corp. The following data pertains to Zonk Corp. ,a manufacturer of ball bearings (dollar amounts in millions): -Determine the weight on equity capital that should be used to calculate Zonk's weighted-average cost of capital:

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

Valuation: Cash-Flow-Based Approaches

Valuation: Earnings-Based Approaches

Valuation: Market-Based Approaches

Filters

Exam 11: Risk-Adjusted Expected Rates of Return and the Dividends Valuation Approach

Explain the theory behind the dividends valuation approach.Why are dividends value-relevant to common equity shareholders?

With respect to dividends and priority in liquidation,what has priority over common stock?

Shady Sunglasses operates retail sunglass kiosks in shopping malls.Below is information related to the company: Using the above information and assuming that steady-state growth in year 2017 and beyond will be 4% calculate Shady Sunglasses value per share.

According to the text,dividends are value-relevant even though the firm's dividend policy is irrelevant.How can that be true? What is the key assumption in the theory of dividend policy irrelevance?

Zonk Corp. The following data pertains to Zonk Corp. ,a manufacturer of ball bearings (dollar amounts in millions): -Assuming that riskless rate is 4.6% and the market premium is 7.3%,calculate Zonk's cost of equity capital:

Equity-based valuation models are based on all metrics except:

Zonk Corp. The following data pertains to Zonk Corp. ,a manufacturer of ball bearings (dollar amounts in millions): -Determine the weight on debt capital that should be used to calculate Zonk's weighted-average cost of capital:

If dividend projections include the effect of inflation,then the discount rate used should be a(n)____________________ rate.

Why are dividends value-relevant to common equity shareholders?

Returns on systematic risk-free securities (like U.S.Treasury securities)should exhibit what type of correlation with returns on a diversified market wide portfolio of stocks?

When deriving the equity value of a firm,an analyst forecasts the real dividends expected to be paid in the future.In this case,which discount rate should be used?

Implementing a dividend valuation model to determine the value of the common shareholders' equity requires an analyst to measure three elements.What are the three elements that the analyst needs to measure?

Explain why analysts and investors use risk-adjusted expected rates of return as discount rates in valuation.Why do risk-adjusted expected rates of return increase with risk?

The dividends valuation approach measures value-relevant dividends to encompass various transactions between the firm and the common shareholders.What transactions should the analyst include in value-relevant dividends for purposes of implementing the dividends valuation model? Why?

Equity valuation models based on dividends,cash flows,and earnings have been the topic of many theoretical and empirical research studies in recent years.All of the following are true regarding these studies except:

One criticism in using the CAPM to calculate the cost of equity capital is that ______________________________ and the __________________________________________________ are quite sensitive to the time period and methodology used in their computation.

Zonk Corp. The following data pertains to Zonk Corp. ,a manufacturer of ball bearings (dollar amounts in millions): -Determine the weight on equity capital that should be used to calculate Zonk's weighted-average cost of capital:

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

Valuation: Cash-Flow-Based Approaches

Valuation: Earnings-Based Approaches

Valuation: Market-Based Approaches

Filters

One criticism in using the CAPM to calculate the cost of equity capital is that and the ____________________ are quite sensitive to the time period and methodology used in their computation.