# 30 questions on finanace | Business & Finance homework help

Question 1.1. Which of the following contributes to high P/E ratios (Points : 1)

High dividend payout ratios

High rate of earnings growth

Periods of high inflation

High debt ratios

Question 2.2. A company that wants to maintain both a constant growth rate in dividends and a constant payout ratio will have to (Points : 1)

grow earnings faster than dividends.

increase assets at the same rate as dividends.

grow earnings at the same rate as dividends.

increase stockholders’ equity at the same rate as dividends.

Question 3.3. There is no assurance that the actual rate of return on an asset will be similar to the projected rate of return. (Points : 1)

True

False

Question 4.4. The constant-growth dividend valuation model is best suited for use with (Points : 1)

stocks of new or emerging companies.

small-cap stocks within growing industries.

the stocks of mature, dividend-paying companies.

the stocks of cyclical companies.

Question 5.5. There is no assurance that the actual rate of return on an asset will be similar to the projected rate of return. (Points : 1)

True

False

Question 6.6. Most stocks trade at five to seven times their book values. (Points : 1)

True

False

Question 7.7. In the price/earnings approach to stock valuation, (Points : 1)

historical stock prices are utilized.

forecasted EPS are typically used.

the P/E ratio is computed by multiplying the stock price by the earnings per share.

the market P/E ratio, adjusted by beta, is used to value individual stocks.

Question 8.8. 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 (Points : 1)

30.

-30.

3.

.33.

Question 9.9. The subjective approach to determining a required rate of return for a stock includes

(Points : 1)

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

Question 10.10. Which of the following will most directly influence a company’s market value? (Points : 1)

The state of the economy.

The book value of its assets.

The use of financial leverage.

Its future cash flows.

Question 11.11. The intrinsic value of a stock provides a purchase price for the stock (Points : 1)

that is reasonable given the associated level of risk.

which will assuredly yield the anticipated capital gain.

which will guarantee the expected rate of return.

that is always below the market value but yet yields the expected rate of return.

Question 12.12. 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. (Points : 1)

True

False

Question 13.13. If net income rises, but the number of shares outstanding remains the same, EPS will rise. (Points : 1)

True

False

Question 14.14. 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? (Points : 1)

\$21,619

\$36,032

\$48,327

\$60,053

Question 15.15. Which of the following characteristics appeal to so-called value investors?

(Points : 1)

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

Question 16.16. 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. (Points : 1)

True

False

Question 17.17. The key to the future behavior of a company lies in the sales growth and the net profit margin. (Points : 1)

True

False

Question 18.18. Which one of the following is a correct equation to calculate earnings per share? (Points : 1)

(ROA)(book value per share)

(profit margin)(total asset turnover)(equity multiplier)(book value per share)

(profit margin)(equity multiplier)(book value per share)

(profit margin)(book value per share)

Question 19.19. 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. (Points : 1)

True

False

Question 20.20. 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 (Points : 1)

a growth investor.

a value investor.

an index investor.

Question 21.21. 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? (Points : 1)

8.23%

12.2%

12.6%

13.9%

Question 22.22. Whisper numbers are (Points : 1)

officially published forecast numbers provided by company management.

the official released estimates prepared by financial analysts.

generally less accurate than the released estimates by analysts.

generally higher than the released analysts’ forecasts.

Question 23.23. The rate of dividend growth can be estimated by multiplying the return on equity rate by the dividend payout ratio. (Points : 1)

True

False

Question 24.24. The constant-growth dividend valuation model is best suited for use with (Points : 1)

stocks of new or emerging companies.

small-cap stocks within growing industries.

the stocks of mature, dividend-paying companies.

the stocks of cyclical companies.

Question 25.25. 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 (Points : 1)

approximate yield model.

holding period return model.

dividend reinvestment model.

constant growth dividend valuation model.

Question 26.26. The rate of growth can exceed the required return during the variable-growth period without invalidating the variable growth dividend valuation model. (Points : 1)

True

False

Question 27.27. 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. (Points : 1)

True

False

Question 28.28. The subjective approach to determining a required rate of return for a stock includes

(Points : 1)

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

Question 29.29. Which of the following characteristics appeal to so-called value investors?

(Points : 1)

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

Question 30.30. 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? (Points : 1)

\$12.50

\$18.88

\$20.83

\$25.00

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