1. Every valuation method has its limitations. (Points : 1) True False 2. Divide
ID: 2348735 • Letter: 1
Question
1. Every valuation method has its limitations. (Points : 1)True
False
2. Dividend valuation models are best suited for firms in the expansion or maturity phase of their life cycle. (Points : 1)
True
False
3. The general dividend model assumes the value of a firm is equal to the present value of future dividends. (Points : 1)
True
False
4. There is little relationship between R&D expenditures as a percent of sales and growth of earnings per share. (Points : 1)
True
False
5. The final value calculated in dividend valuation models is typically very accurate. (Points : 1)
True
False
6. Dividend models are best suited for those companies that are in the: (Points : 1)
Introduction phase of the life cycle
Expansion phase of the life cycle
Maturity phase of the life cycle
Both b and c
7. Short-term speculators would probably NOT use _________ to develop a stock value. (Points : 1)
Dividend growth rates
A stream of earnings or dividends
The income statement method
Any of the above
8. The value of the price-earnings ratio is affected by (Points : 1)
The earnings period used for it's calculation
Expected growth in earnings per share
Overall conditions in the stock market
Inflationary expectations
All of the above
9. The value of common stock can be viewed as: (Points : 1)
A dividend stream plus a market price at the end of the dividend stream
A present value of a dividend stream plus a market price at the end of the dividend stream
The terminal value of the dividend stream
The sum of the dividend stream taken to infinity
10. The primary difference between dividend valuation models and earnings valuation models is. (Points : 1)
Selecting the appropriate discount rate
Dividends are not considered in earnings models
Whether the investor's income stream or the firm's income stream is measured
More than one of the above
11. If the company's profit margin is constant over time, the number of common shares remain the same, and the dividend payout ratio stays the same, the price to sales ratio, the price to earnings ratio and the price to book value ratio should (Points : 1)
Provide similar valuations for the company's stock value
Provide very different valuations for the company's stock value
Not be related in any way
None of the above are true.
12. The constant growth dividend valuation model assumes (Points : 1)
A constant annual dividend
A constant dividend growth rate for no more than the first 10 years
That the discount rate must be greater than the dividend growth rate
That the dividend growth rate must be greater that the discount rate
(A. and (B. are true assumptions
13. The valuation models using price to sales, price to earnings, price to book value, price to cash flow and price to dividends assume that (Points : 1)
There is a historical relationship between these ratios and the current price ratio
When the current price ratio is below the historical ratio, the stock may be undervalued
There is some general accounting relationship between these five ratios based on historical performance
All of the above are true.
14. The basis of stock valuation includes an analysis of (Points : 1)
Economic variables
Industry variables
Financial statements
All of the following
15. Which of the following statements about stock valuation based on asset value is NOT true? (Points : 1)
Natural resources often give a company value even if an income stream is not produced
The value of the assets may not even appear on the balance sheet
Current assets are usually excluded from the valuation process since they will be used up in the next business cycle
Hidden assets can add substantial value to the firm
16. DuPont analysis illustrates that the return on equity can be increased by decreasing the amount of debt used in the capital structure. (Points : 1)
True
False
17. A primary use of the sources and uses of funds is to determine how current assets and longer-term assets are financed. (Points : 1)
True
False
18. Financial statements present a numerical picture of a company's financial and operating health. (Points : 1)
True
False
19. Financial ratios are meaningless unless they are compared to a company standard, historical, or industry data. (Points : 1)
True
False
20. LIFO accounting tends to increase inventory profits. (Points : 1)
True
False
21. Price Printing Co. had sales of $10 million, Operating Income of $3 million; After-tax income of $1 million; assets of $8 million; Stockholders' equity of $5 million; and a total debt of $3 million. What is Price Printing Company's asset turnover? (Points : 1)
.50x
1.25x
2.50x
3.33x
.80x
22. The ________ ratios help determine the degree of financial risk and earnings volatility present in a firm. (Points : 1)
Profitability
Asset utilization
Liquidity
Debt-utilization
Price
23. The ________ does not represent continuing operations in any way, but is simply a snapshot of the total worth of a firm at a given point in time. (Points : 1)
Income statement
Balance sheet
Sources and uses of funds statement
Statement of cash flows
None of the above
24. The major device that indicates what the firm owns and how these assets are financed in the form of liabilities or ownership interest: (Points : 1)
The balance sheet
The statement of cash flows
The income statement
The general ledger
25. Price Printing Co. had sales of $10 million, Operating Income of $3 million; After-tax income of $1 million; assets of $8 million; Stockholders' equity of $5 million; and a total debt of $4 million. What is Price Printing Company's return on assets? (Points : 1)
37.5%
12.5%
30.0%
25.0%
20.0%
26. A stock is a good buy when the value of these ratios except one is low compared to a market index or company history. Which one doesn't belong? (Points : 1)
Price to book value
Price to earnings
Dividend yield
All of the above belong
27. The primary purpose of the liquidity ratios is to determine (Points : 1)
How much working capital is tied up in inventory
The relative level of short-term debt
How well a firm is able to pay off short-term obligations
More than one of the above
28. Price Printing Co. had sales of $10 million, Operating Income of $3 million; After-tax income of $1 million; assets of $8 million; Stockholders' equity of $5 million; and a total debt of $3 million. What is Price Printing Company's return on equity? (Points : 1)
37.5%
10.0%
20.0%
60.0%
12.5%
29. The major device for measuring the profitability of a firm over a defined period of time is the (Points : 1)
Income statement
Balance sheet
Statement of cash flows
None of the above
30. Which of the following is a good example of changes in accounting principles? (Points : 1)
A change in earnings per share due to an increase in the number of shares of common stock
A change in income due to a change for post retirement benefits
A change in earnings before taxes because of a change in internal rates on debt
None of the above
Explanation / Answer
True True False True False Both b and c Dividend growth rates Overall conditions in the stock market The terminal value of the dividend stream More than one of the above Provide very different valuations for the company's stock value A constant dividend growth rate for no more than the first 10 years All of the above are true. All of the following Hidden assets can add substantial value to the firm True False True False False 2.50x Assets utilization None of the above The statement of cash flows 12.5% Price to book value The relative level of short-term debt 10% Balance sheet A change in earnings per share due to an increase in the number of shares of common stock
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