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A stock has an intrinsic value of $15 and an actual stock price of $13.50. You know that this stock ________. Answer has a Tobin's Q value < 1 is under valued has an expected return less than its required return has a beta > 1

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Question 2
1. A firm cuts its dividend payout ratio. As a result you know that the firm's _______. Answer return on assets will increase earnings retention ratio will increase earnings growth rate will fall stock price will fall

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Question 3
1. The constant growth dividend discount model (DDM) can be used only when the ___________. Answer growth rate is less than or equal to the required return growth rate is greater than or equal to the required return growth rate is less than the required return growth rate is greater than the required return

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Question 4
1. You wish to earn a return of 10% on each of two stocks, A and B. Each of the stocks is expected to pay a dividend of $4 in the upcoming year. The expected growth rate of dividends is 6% for stock A and 5% for stock B. Using the constant growth DDM, the intrinsic value of stock A _________. Answer will be higher than the intrinsic value of stock B

will be the same as the intrinsic value of stock B will be less than the intrinsic value of stock B more information is necessary to answer this question

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Question 5
1. You are considering acquiring a common share of Sahali Shopping Center Corporation that you would like to hold for one year. You expect to receive both $1.25 in dividends and $35 from the sale of the share in one year. The maximum price you would pay for a share today is __________ if you wanted to earn a 12% return. Answer $31.25 $32.37 $38.47 $41.32

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Question 6
1. Weyerhaeuser Incorporated has a balance sheet which lists $70 million in assets, $45 million in liabilities and $25 million in common shareholders' equity. It has 1,000,000 common shares outstanding. The replacement cost of its assets is $85 million. Its share price in the market is $49. Its book value per share is _________. Answer $16.67 $25.00 $37.50 $40.83

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Question 7
1. Gagliardi Way Corporation has an expected ROE of 15%. If it pays out 30% of it earnings as dividends, its dividend growth rate will be _____. Answer 4.5% 10.5% 15.0%

30.0%

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Question 8
1. A preferred share of Coquihalla Corporation will pay a dividend of $8.00 in the upcoming year, and every year thereafter, i.e., dividends are not expected to grow. You require a return of 7% on this stock. Using the constant growth DDM to calculate the intrinsic value, a preferred share of Coquihalla Corporation is worth _________. Answer $13.50 $45.50 $91.00 $114.29

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Question 9
1. A firm is planning on paying its first dividend of $2 in three years. Then dividends are expected to grow at 6% per year indefinitely. The stock's required return is 14%. What is the intrinsic value of a share today? Answer $25.00 $16.87 $19.24 $20.99

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Question 10
1. Rose Hill Trading Company is expected to have EPS in the upcoming year of $8.00. The expected ROE is 18.0%. An appropriate required return on the stock is 14%. If the firm has a plowback ratio of 70%, its dividend in the upcoming year should be _________. Answer $1.12 $1.44 $2.40 $5.60

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Question 11
1. Firms with higher expected growth rates tend to have P/E ratios that are ___________ the P/E ratios of firms with lower expected growth rates. Answer higher than equal to lower than There is not necessarily any linkage between risk and P/E ratios

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Question 12
1. Westsyde Tool Company is expected to pay a dividend of $1.50 in the upcoming year. The risk-free rate of return is 6% and the expected return on the market portfolio is 14%. Analysts expect the price of Westsyde Tool Company shares to be $29 a year from now. The beta of Westsyde Tool Company's stock is 1.20. Using the CAPM, an appropriate required return on Westsyde Tool Company's stock is _________. Answer 8.0% 10.8% 15.6% 16.8%

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Question 13
1. Lifecycle Motorcycle Company is expected to pay a dividend in year 1 of $2.00, a dividend in year 2 of $3.00, and a dividend in year 3 of $4.00. After year 3, dividends are expected to grow at the rate of 7% per year. An appropriate required return for the stock is 12%. Using the multistage DDM, the stock should be worth __________ today. Answer $63.80 $65.13 $67.95 $85.60

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Question 14
1. Transportation stocks currently provide an expected rate of return of 15%. TTT, a large transportation company, will pay a yearend dividend of $3 per share. If the stock is selling at $60 per share, what must be the market's expectation of the constant growth rate of TTT dividends? Answer 5% 10% 20% None of the above

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Question 15
1. The EBIT of a firm is $300, the tax rate is 35%, the depreciation is $20, capital expenditures are $60, the increase in net working capital is $30 and the increase in debt was $60 and What is the free cash flow to the firm? Answer $85 $125 $185 $305

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Question 16
1. The free cash flow to the firm is $300 million in perpetuity, the cost of equity equals 14% and the WACC is 10%. If the market value of the debt is $1.0 billion, what is the value of the stock assuming 1 billion shares outstanding? Answer $2 billion $2 $3 $4

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Question 17
1.

The free cash flow to the firm is reported as $205 million. The interest expense to the firm is $22 million. If the tax rate is 35% and the net debt of the firm increased by $25, what is the market value of the firm if the FCFE grows at 2% and the cost of equity is 11%? Hint: calculate FCFE using FCFF and the other information given. Answer $2,168 billion $2,397 billion $2,565 billion $2,998 billion

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Question 18
1. The greatest value to an analyst from calculating a stock's intrinsic value is _______. Answer how easy it is to come up with accurate model inputs the precision of the value estimate how the process forces analysts to understand the critical variables that have the greatest impact on value how all the different models typically yield identical value results

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Question 19
1. You are valuing the common shares of a mature company that competes in a mature industry. The company's dividends and earnings are expected to grow at a constant 3%/year. Which would be the most appropriate model to value these shares? Answer Gordon growth model No growth model Three stage dividend discount model

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Question 20
1. The primary difference between the trailing twelve month PE ratio and the forward PE ratio is that the forward PE ratio takes into account: Answer Future expectations

The law of one price historical information

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Question 21
1. The Berkeley Ganja Co-op is a purveyor of fine herbal remedies. Their stock has had the following historical PE ratios from 2005 - 2009: 6.7, 7.2, 5.9, 6.9 and 7.1. As of 2010 their PE ratio is 8.4. The stock is most likely _______________. Answer under valued fairly valued over valued

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