Finance 571 - Corporate Finance » Spring 2022 » Wk 1 Practice Ch. 7, Valuing Stocks

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Question #1
The present value of the cash payoffs anticipated by the investor in a stock is called the share's ________.
A.   book value
B.   equity
C.   dividend
D.   intrinsic value
Question #2
The dividend discount model implies that investors who agree about the firm's _______ and _______ will also agree about its _______.
A.   current dividends; risk; future dividends
B.   future dividends; risk; current dividends
C.   future dividends; risk; current share price
D.   future dividends; risk; required return
Question #3
Which of the following statements are correct regarding the method of valuation by comparables?
A.   A firm's market value can be estimated by multiplying its earnings per share by the P/E ratio for a similar firm. A firm's market value can be estimated by finding the share price of a similar firm and using that value
B.   A firm's market value can be estimated by using the share price of any similar-sized firm. A firm's market value can be estimated by multiplying its book value by the market/book ratio for a similar firm.
C.   A firm's market value can be estimated by multiplying its earnings per share by the P/E ratio for a similar firm. A firm's market value can be estimated by multiplying its book value by the market/book ratio for a similar firm.
D.   A firm's market value can be estimated by using the share price of any similar-sized firm. A firm's market value can be estimated by finding the share price of a similar firm and using that value
Question #4
True or false: the dividend yield is an indicator of how much dividend income you will receive for every $100 you invest in the stock.
A.   False
B.   True
Question #5
In the constant growth dividend discount model, the expected return is equal to ______.
A.   dividend yield × growth rate
B.   dividend yield + growth rate
C.   dividend yield/growth rate
D.   dividend yield − growth rate
Question #6
Companies that grow rapidly for several years before settling down to a stable growth rate should use the _________ for stock valuation.
A.   non-constant growth model
B.   no-growth model
C.   organic growth model
D.   constant growth model
Question #7
Which of the following statements are true regarding the intrinsic value of a stock?
A.   It is the present value of the cash payoffs anticipated by the investor who buys the stock. It is a theoretical value that is never actually observed in practice.
B.   It is based on the recent historical returns of the stock. It is a theoretical value that is never actually observed in practice.
C.   It is based on the recent historical returns of the stock. It is the price that should be observed in a well-functioning stock market.
D.   It is the present value of the cash payoffs anticipated by the investor who buys the stock. It is the price that should be observed in a well-functioning stock market.
Question #8
The dividend discount model asserts that the value of a share of stock today is determined by __________.
A.   the present value of next year's dividend to be paid by the stock
B.   the present value of the firm's forecasted PE ratio
C.   the present value of the future sale price of the stock
D.   the present value of all forecasted future dividends paid by the stock
Question #9
The current yield on a bond is similar to the __________ on a stock in that both ignore prospective capital gains and losses.
A.   ROA
B.   price/earnings ratio
C.   dividend yield
D.   ROE
Question #10
The expected rate of return for a stock whose next dividend is "DIV1," that has a required rate of return "r" and expects to grow its future dividends at a rate of "g" is ________.
A.   r = (DIV1/P0) + g
B.   r = DIV1/P0
C.   r = g
D.   r = DIV1 + P0/g
Question #11
A stock that pays out a perpetual stream of constant dividends can be valued as a(n) _________.
A.   long-term bond
B.   constant growth stock
C.   annuity
D.   perpetuity
Question #12
The terminal value is defined as __________.
A.   the highest dividend paid by the firm
B.   the stock price at the start of the year in which constant dividend growth begins
C.   the value of the firm if it was closed and its assets liquidated
D.   the present value of the firm's stock price at the end of the non-constant growth period

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