Describe Stock Valuation Management Questions
Problem1- Which of the following contributes to high P/E ratios.
A) High dividend payout ratios
B) High rate of earnings growth
C) Periods of high inflation
D) High debt ratios
Problem2- A Company that wants to maintain both a constant growth rate in dividends and a constant payout ratio will have to.
A) Grow earnings faster than dividends.
B) Increase assets at the same rate as dividends.
C) Grow earnings at the same rate as dividends.
D) Increase stockholders' equity at the same rate as dividends.
Problem3- There is no assurance that the actual rate of return on an asset will be similar to the projected rate of return.
True
False
Problem4- The constant-growth dividend valuation model is best suited for use with-
A) Stocks of new or emerging companies.
B) Small-cap stocks within growing industries.
C) The stocks of mature, dividend-paying companies.
D) The stocks of cyclical companies.
Problem 5- There is no assurance that the actual rate of return on an asset will be similar to the projected rate of return.
True
False
Problem6- Most stocks trade at five to seven times their book values.
True
False
Problem7- In the price/earnings approach to stock valuation,
A) Historical stock prices are utilized.
B) Forecasted EPS are typically used.
C) The P/E ratio is computed by multiplying the stock price by the earnings per share.
D) The market P/E ratio, adjusted by beta, is used to value individual stocks.
Problem8- GLOO stock's P/E ratio is 45 at a time when the market's P/E ratio is 15. GLOO's realtive P/E ratio is
A) 30.
B) -30.
C) 3.
D).33.
Problem 9- The subjective approach to determining a required rate of return for a stock includes
I. The rate of return on a long-term bond
II. A risk premium for the perceived business risk of the asset
III. A risk premium for assuming the risk of the market
IV. The desired rate of return of the individual investor
I and III only
II and IV only
I, II and IV only
I, II and III only
Problem10- Which of the following will most directly influence a company's market value?
A) The state of the economy.
B) The book value of its assets.
C) The use of financial leverage.
D) Its future cash flows.
Solve the following questions.
Problem1- The intrinsic value of a stock provides a purchase price for the stock
A) That is reasonable given the associated level of risk.
B) Which will assuredly yield the anticipated capital gain?
C) Which will guarantee the expected rate of return?
D) That is always below the market value but yet yields the expected rate of return.
Problem2- A stock's internal rate of return (IRR) is the discount rate that cause the present value of future dividends to equal the price of the stock.
True
False
Problem3- If net income rises, but the number of shares outstanding remains the same, EPS will rise.
True
False
Problem4- The common stock of Jennifer's Furniture Outlet is currently selling at $32.60 a share. The company adheres to a 60% dividend payout ratio and has a P/E ratio of 19. There are 21,000 shares of stock outstanding. What is the amount of the annual net income for the firm?
A) $21,619
B) $36,032
C) $48,327
D) $60,053
Problem 5- Which of the following characteristics appeal to so-called value investors?
I. High P/E ratios
II. Low debt to equity ratios
III. High cash flow relative to price
IV. High book value relative to market price
I and II only
I and III only
I, II and IV only
II, III and IV only
Problem 6- The dividend valuation model (DVM) is very sensitive to the growth rate (g) being used, because it affects both the model's numerator and its denominator.
True
False
Problem7- The key to the future behavior of a company lies in the sales growth and the net profit margin.
True
False
Problem8- Which one of the following is a correct equation to calculate earnings per share?
A) (ROA)(book value per share)
B) (profit margin)(total asset turnover)(equity multiplier)(book value per share)
C) (profit margin)(equity multiplier)(book value per share)
D) (profit margin)(book value per share)
Problem 9- The price of a stock with a low relative P/E will tend to be more volatile than the price of a stock with a high relative P/E.
True
False
Problem10- Stephanie is an investor who believes that the real key to a company's future stock price lies in its future earnings. When investing in a company, she carefully studies its future earnings potential, and sells a company's stock at the first sign of any trouble. This information indicates that Della would correctly be classified as
A) A growth investor.
B) A value investor.
C) A buy-and-hold investor.
D) An index investor.
Solve the following question
Problem1- Newton, Inc. just paid an annual dividend of $0.95 . Their dividends are expected to increase by 4% annually. Newton Company stock is selling for $11.54 a share. What is the capitalization rate on this stock?
A) 8.23%
B) 12.2%
C) 12.6%
D) 13.9%
Problem2- Whisper numbers are
A) Officially published forecast numbers provided by company management.
B) The official released estimates prepared by financial analysts.
C) Generally less accurate than the released estimates by analysts.
D) Generally higher than the released analysts' forecasts.
Problem3- The rate of dividend growth can be estimated by multiplying the return on equity rate by the dividend payout ratio.
True
False
Problem4- The constant-growth dividend valuation model is best suited for use with
A) Stocks of new or emerging companies.
B) Small-cap stocks within growing industries.
C) The stocks of mature, dividend-paying companies.
D) The stocks of cyclical companies.
Problem5- One stock valuation model holds that the value of a share of stock is a function of its future dividends, and that the dividends will increase at an annual rate which will remain unchanged over time. This stock valuation model is known as the
A) Approximate yield model.
B) Holding period return model.
C) Dividend reinvestment model.
D) Constant growth dividend valuation model.
Problem6- The rate of growth can exceed the required return during the variable-growth period without invalidating the variable growth dividend valuation model.
True
False
Problem7-. A stock's internal rate of return (IRR) is the discount rate that cause the present value of future dividends to equal the price of the stock.
True
False
Problem8- The subjective approach to determining a required rate of return for a stock includes
I. The rate of return on a long term bond
II. A risk premium for the perceived business risk of the asset
III. A risk premium for assuming the risk of the market
IV. The desired rate of return of the individual investor
I and III only
II and IV only
I, II and IV only
I, II and III only
Problem9- Which of the following characteristics appeal to so-called value investors?
I. High P/E ratios
II. Low debt to equity ratios
III. High cash flow relative to price
IV. High book value relative to market price
I and II only
I and III only
I, II and IV only
II, III and IV only
Problem10- Michelak's Maritime Industries has relatively stable earnings and pays an annual dividend of $2.50 per share. This dividend has remained constant over the past few years and is expected to remain constant for some time to come. If you want to earn 12% on an investment in the common stock of Michelak's, how much should you pay to purchase each share of stock?
A) $12.50
B) $18.88
C) $20.83
D) $25.00
I need help to solve these questions.