_______ is the amount of money per common share that could be realized by breaking up the firm,

selling the assets, repaying the debt, and distributing the remainder to shareholders.

Select one:

a. Book value per share

b. Tobin's Q

c. Market value per share

d. Liquidation value per share

e. None of these is correct

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The correct answer is: Liquidation value per share

Question 2

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________ are analysts who use information concerning current and prospective profitability of a firm to
assess the firm's fair market value.

Select one:

a. Specialists

b. Technical analysts

c. Credit analysts

d. Systems analysts

e. Fundamental analysts

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The correct answer is: Fundamental analysts

Question 3

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________ is equal to the total market value of the firm's common stock divided by (the replacement
cost of the firm's assets less liabilities).

Select one:

a. Liquidation value per share

b. Book value per share

c. None of these is correct

d. Tobin's Q

e. Market value per share

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The correct answer is: Tobin's Q

Question 4

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_________ is equal to (common shareholders' equity/common shares outstanding).

Select one:

a. None of these is correct

b. Liquidation value per share

c. Book value per share

d. Market value per share

e. Tobin's Q

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The correct answer is: Book value per share

Question 5

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A preferred stock will pay a dividend of $1.25 in the upcoming year, and every year thereafter, i.e.,
dividends are not expected to grow. You require a return of 12% on this stock. Use the constant growth
DDM to calculate the intrinsic value of this preferred stock.

Select one:

a. None of these is correct

b. $11.82

c. $10.42

d. $11.56

e. $9.65

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The correct answer is: $10.42

Question 6

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A preferred stock will pay a dividend of $2.75 in the upcoming year, and every year thereafter, i.e.,
dividends are not expected to grow. You require a return of 10% on this stock. Use the constant growth
DDM to calculate the intrinsic value of this preferred stock.

Select one:

a. $27.50

b. $31.82

c. $56.25

d. $0.275

e. None of these is correct

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The correct answer is: $27.50

Question 7

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A preferred stock will pay a dividend of $3.00 in the upcoming year, and every year thereafter, i.e.,
dividends are not expected to grow. You require a return of 9% on this stock. Use the constant growth
DDM to calculate the intrinsic value of this preferred stock.

Select one:

a. $0.27

b. $33.33

c. $31.82

d. $56.25

e. None of these is correct

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The correct answer is: $33.33

Question 8

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A preferred stock will pay a dividend of $3.50 in the upcoming year, and every year thereafter, i.e.,
dividends are not expected to grow. You require a return of 11% on this stock. Use the constant growth
DDM to calculate the intrinsic value of this preferred stock.

Select one:

a. $0.39

b. $31.82

c. $0.56

d. $56.25

e. None of these is correct

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The correct answer is: $31.82

Question 9

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A preferred stock will pay a dividend of $6.00 in the upcoming year, and every year thereafter, i.e.,
dividends are not expected to grow. You require a return of 10% on this stock. Use the constant growth
DDM to calculate the intrinsic value of this preferred stock.

Select one:

a. $600

b. None of these is correct

c. $6.00

d. $0.60

e. $60.00

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The correct answer is: $60.00

Question 10

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A preferred stock will pay a dividend of $7.50 in the upcoming year, and every year thereafter, i.e.,
dividends are not expected to grow. You require a return of 10% on this stock. Use the constant growth
DDM to calculate the intrinsic value of this preferred stock.

Select one:

a. None of these is correct

b. $64.12

c. $56.25

d. $7.50

e. $0.75
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The correct answer is: None of these is correct

Question 11

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Bubba Gumm Company has an expected ROE of 9%. The dividend growth rate will be _______ if the firm
follows a policy of plowing back 10% of earnings.

Select one:

a. 90%

b. 9%

c. None of these is correct

d. 10%

e. 0.9%

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The correct answer is: 0.9%

Question 12

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Each of two stocks, A and B, are expected to pay a dividend of $5 in the upcoming year. The expected
growth rate of dividends is 10% for both stocks. You require a rate of return of 11% on stock A and a
return of 20% on stock B. The intrinsic value of stock A ____.

Select one:

a. cannot be calculated without knowing the market rate of return

b. will be less than the intrinsic value of stock B

c. will be the same as the intrinsic value of stock B

d. will be greater than the intrinsic value of stock B

e. None of these is correct

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The correct answer is: will be greater than the intrinsic value of stock B

Question 13

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Each of two stocks, C and D, are expected to pay a dividend of $3 in the upcoming year. The expected
growth rate of dividends is 9% for both stocks. You require a rate of return of 10% on stock C and a
return of 13% on stock D. The intrinsic value of stock C ____.

Select one:

a. will be greater than the intrinsic value of stock D

b. cannot be calculated without knowing the market rate of return

c. will be the same as the intrinsic value of stock D

d. will be less than the intrinsic value of stock D

e. None of these is correct

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The correct answer is: will be greater than the intrinsic value of stock D

Question 14

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High P/E ratios tend to indicate that a company will ______, ceteris paribus.

Select one:

a. grow slowly

b. None of these is correct

c. grow quickly
d. grow at the same speed as the average company

e. not grow

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The correct answer is: grow quickly

Question 15

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High Speed Company has an expected ROE of 15%. The dividend growth rate will be ________ if the firm
follows a policy of paying 50% of earnings in the form of dividends.

Select one:

a. 6.0%

b. 3.0%

c. 7.5%

d. None of these is correct

e. 4.8%

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The correct answer is: 7.5%

Question 16

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Historically, P/E ratios have tended to be ________.

Select one:

a. uncorrelated with any macroeconomic variables including inflation rates

b. uncorrelated with inflation rates but correlated with other macroeconomic variables

c. higher when inflation has been high

d. lower when inflation has been high

e. None of these is correct

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The correct answer is: lower when inflation has been high

Question 17

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If the expected ROE on reinvested earnings is equal to k, the multistage DDM reduces to

Select one:

a. V0= (Treasury Bond Yield in Year 1)/k

b. V0= (Expected EPS in Year 1)/k

c. None of these is correct

d. V0= (Expected Dividend Per Share in Year 1)/k

e. V0= (Market return in Year 1)/k

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The correct answer is: V0= (Expected EPS in Year 1)/k

Question 18

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Light Construction Machinery Company has an expected ROE of 11%. The dividend growth rate will be
_______ if the firm follows a policy of paying 25% of earnings in the form of dividends.

Select one:

a. 4.8%

b. 3.0%

c. None of these is correct

d. 9.0%

e. 8.25%

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The correct answer is: 8.25%

Question 19

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link Company has an expected ROE of 15%. The dividend growth rate will be _______ if the firm follows
a policy of plowing back 75% of earnings.

Select one:

a. 11.25%

b. 3.75%

c. 8.25%

d. None of these is correct

e. 15.0%

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The correct answer is: 11.25%

Question 20

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Low Tech Company has an expected ROE of 10%. The dividend growth rate will be ________ if the firm
follows a policy of paying 40% of earnings in the form of dividends.

Select one:

a. None of these is correct

b. 4.8%
c. 3.0%

d. 7.2%

e. 6.0%

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The correct answer is: 6.0%

Question 21

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Medtronic Company has an expected ROE of 16%. The dividend growth rate will be ________ if the firm
follows a policy of paying 70% of earnings in the form of dividends.

Select one:

a. 7.2%

b. None of these is correct

c. 6.0%

d. 4.8%

e. 3.0%

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The correct answer is: 4.8%

Question 22

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Music Doctors Company has an expected ROE of 14%. The dividend growth rate will be ________ if the
firm follows a policy of paying 60% of earnings in the form of dividends.

Select one:

a. 4.8%
b. 6.0%

c. None of these is

d. 5.6%

e. 7.2%

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The correct answer is: 5.6%

Question 23

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One of the problems with attempting to forecast stock market values is that

Select one:

a. there are no variables that seem to predict market return.

b. the earnings multiplier approach can only be used at the firm level.

c. dividend payout ratios are highly variable.

d. None of these is correct

e. the level of uncertainty surrounding the forecast will always be quite high.

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The correct answer is: the level of uncertainty surrounding the forecast will always be quite high.

Question 24

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Since 1955, Treasury bond yields and earnings yields on stocks were _______.

Select one:

a. identical

b. positively correlated
c. uncorrelated

d. negatively correlated

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The correct answer is: positively correlated

Question 25

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The ______ is a common term for the market consensus value of the required return on a stock.

Select one:

a. intrinsic value

b. None of these is correct

c. market capitalization rate

d. dividend payout ratio

e. plowback rate

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The correct answer is: market capitalization rate

Question 26

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The _______ is defined as the present value of all cash proceeds to the investor in the stock.

Select one:

a. intrinsic value

b. market capitalization rate

c. dividend payout ratio

d. None of these is correct

e. plowback ratio

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The correct answer is: intrinsic value

Question 27

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The _________ is the fraction of earnings reinvested in the firm.

Select one:

a. dividend payout ratio

b. retention rate

c. plowback ratio

d. dividend payout ratio and plowback ratio

e. retention rate and plowback ratio

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The correct answer is: retention rate and plowback ratio

Question 28

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The Gordon model

Select one:

a. is valid only when g is less than k.

b. is a generalization of the perpetuity formula to cover the case of a growing perpetuity.

c. is a generalization of the perpetuity formula to cover the case of a growing perpetuity and is valid
only when k is less than g

d. is valid only when k is less than g.

e. is a generalization of the perpetuity formula to cover the case of a growing perpetuity and is valid
only when g is less than k.

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The correct answer is: is a generalization of the perpetuity formula to cover the case of a growing
perpetuity and is valid only when g is less than k.

Question 29

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The most popular approach to forecasting the overall stock market is to use

Select one:

a. the aggregate return on assets.

b. the dividend multiplier.

c. Tobin's Q

d. the historical ratio of book value to market value.

e. the aggregate earnings multiplier.

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The correct answer is: the aggregate earnings multiplier.

Question 30

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Think Tank Company has an expected ROE of 26%. The dividend growth rate will be _______ if the firm
follows a policy of plowing back 90% of earnings.

Select one:

a. 23.4%

b. 90%

c. None of these is correct

d. 2.6%

e. 10%

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The correct answer is: 23.4%

Question 31

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What is Paper Express's book value per share?

Select one:

a. $2.60

b. None of these is correct

c. $60.71

d. $1.68

e. $32.14

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The correct answer is: $32.14

Question 32

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What is Paper Express's market value per share?

Select one:

a. None of these is correct

b. $32.14

c. $60.71

d. $1.68
e. $2.60

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The correct answer is: None of these is correct

Question 33

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You are considering acquiring a common stock that you would like to hold for one year. You expect to
receive both $1.25 in dividends and $32 from the sale of the stock at the end of the year. The maximum
price you would pay for the stock today is _____ if you wanted to earn a 10% return.

Select one:

a. $24.11

b. $30.23

c. $26.52

d. None of these is correct

e. $27.50

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The correct answer is: $30.23

Question 34

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You are considering acquiring a common stock that you would like to hold for one year. You expect to
receive both $0.75 in dividends and $16 from the sale of the stock at the end of the year. The maximum
price you would pay for the stock today is _____ if you wanted to earn a 12% return.

Select one:

a. $26.52

b. None of these is correct

c. $27.50

d. $14.96

e. $23.91

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The correct answer is: $14.96

Question 35

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You are considering acquiring a common stock that you would like to hold for one year. You expect to
receive both $2.50 in dividends and $28 from the sale of the stock at the end of the year. The maximum
price you would pay for the stock today is _____ if you wanted to earn a 15% return.

Select one:

a. $24.11

b. None of these is correct

c. $27.50

d. $23.91

e. $26.52

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The correct answer is: $26.52

Question 36

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You are considering acquiring a common stock that you would like to hold for one year. You expect to
receive both $3.50 in dividends and $42 from the sale of the stock at the end of the year. The maximum
price you would pay for the stock today is _____ if you wanted to earn a 10% return.

Select one:
a. $27.50

b. $26.52

c. $24.11

d. None of these is correct

e. $23.91

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The correct answer is: None of these is correct

Question 37

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You wish to earn a return of 10% on each of two stocks, C and D. Each of the stocks is expected to pay a
dividend of $2 in the upcoming year. The expected growth rate of dividends is 9% for stock C and 10%
for stock D. The intrinsic value of stock C ____.

Select one:

a. will be greater than the intrinsic value of stock D

b. None of these is correct

c. will be the same as the intrinsic value of stock D

d. will be less than the intrinsic value of stock D

e. will be greater than the intrinsic value of stock D or will be the same as the intrinsic value of stock D

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The correct answer is: will be less than the intrinsic value of stock D

Question 38

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You wish to earn a return of 11% on each of two stocks, C and D. Stock C is expected to pay a dividend of
$3 in the upcoming year while Stock D is expected to pay a dividend of $4 in the upcoming year. The
expected growth rate of dividends for both stocks is 7%. The intrinsic value of stock C _____.

Select one:

a. will be greater than the intrinsic value of stock D

b. None of these is correct

c. will be the same as the intrinsic value of stock D

d. will be greater than the intrinsic value of stock D or will be the same as the intrinsic value of stock D

e. will be less than the intrinsic value of stock D

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The correct answer is: will be less than the intrinsic value of stock D

Question 39

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You wish to earn a return of 12% on each of two stocks, A and B. Each of the stocks is expected to pay a
dividend of $2 in the upcoming year. The expected growth rate of dividends is 9% for stock A and 10%
for stock B. The intrinsic value of stock A ____.

Select one:

a. will be greater than the intrinsic value of stock B

b. will be greater than the intrinsic value of stock B or will be the same as the intrinsic value of stock B

c. will be less than the intrinsic value of stock B

d. will be the same as the intrinsic value of stock B

e. None of these is correct

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The correct answer is: will be less than the intrinsic value of stock B

Question 40

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You wish to earn a return of 13% on each of two stocks, X and Y. Stock X is expected to pay a dividend of
$3 in the upcoming year while Stock Y is expected to pay a dividend of $4 in the upcoming year. The
expected growth rate of dividends for both stocks is 7%. The intrinsic value of stock X _____.

Select one:

a. will be the same as the intrinsic value of stock Y

b. None of these is correct

c. will be greater than the intrinsic value of stock Y

d. will be less than the intrinsic value of stock Y

e. will be greater than the intrinsic value of stock Y or will be the same as the intrinsic value of stock Y

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The correct answer is: will be less than the intrinsic value of stock Y