1. The Price-Earnings valuation model estimates the price of a share of stock today as the ______.

a. sum of a forward looking P/E multiple and the EPS in the next period

b. product of the firm’s historic P/E multiple and the EPS in the next period

c. product of a forward looking P/E multiple and the EPS in the next period

d. product of a forward looking P/E multiple and the current EPS

2. Which of the following statements about economic value added (EVA) is NOT true?

a. EVA is a measure of value creation.

b. EVA is a process for attempting to create value.

c. If a firm generates positive EVA then it increases shareholder value.

d. all of the above are true

3. Which of the following is NOT a factor that would be analyzed by a firm as part of an external SWOT analysis?

a. expected inflation

b. expected growth of firm-wide sales

c. expected changes in GDP

d. political uncertainty

4. If a firm is projected to increases revenues by 10% AND net income by the same amount, which of the following must be TRUE?

a. there can be no variable costs

b. there can be no fixed costs

c. there can be no taxes

d. the change in expenses must be exactly equal to the change in revenues

5. Rogue River Retail Inc. has a before-tax cost of debt of 8.00%, a cost of equity of 12.00%, a tax rate of 30.00% and no preferred stock outstanding. If the firm is made up of 50% debt and 50% equity, what is the firm’s after-tax cost of borrowing?

a. 12.00%

b. 11.60%

c. 8.00%

d. 5.60%

6. Which of the following is likely to lead to an increase in a firm’s cost of debt financing?

a. an increase in expected inflation

b. an increase in the riskiness of assets

c. an increase in the average age of debt financing

d. all of the above

7. Which of the following equations for the book value plus adjustment method is correct?

a. value of equity (VE) = market value of equity - adjustments

b. value of equity (VE) = book value of equity + adjustments

c. value of equity (VE) = book value of equity - adjustments

d. value of equity (VE) = market value of equity + adjustments