Fall_07_Exam_Solutions

Fall_07_Exam_Solutions - Fall 07 Test 3 1) Lemonade...

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Fall 07 Test 3 1) Lemonade Corporation’s (LC) only asset is a portable lemonade stand with a book value of $25/share, and has no liabilities. All its lemonade is MinuteMaid, purchased at the supermarket. Investors require a 10% return on LC stock. LC earned net income of $5/share last year, up from $2.50/share the previous year. If LC stock trades at $40/share, A) It is underpriced and should be bought B) It is not underpriced and should not be bought 2) If Companies A and B are otherwise similar but Company A has a higher beta, then _______ likely has the higher P/E ratio. A) Company A B) Company B 3) If Companies A and B are otherwise similar but Company A consistently has a higher ROE, then _______ likely has the higher P/E ratio. A) Company A B) Company B 4) If Target and Macy’s have the same total assets and the same total liabilities, and the same market capitalization, but Macy’s has some goodwill while Target does not, then (assume book and tangible book are positive for each company) A) Macy’s has the higher Price to Tangible Book B) Target has the higher Price to Tangible Book 5) Based on historical evidence, a stock with a price of $50 and ttm EPS of $5 can be expected to earn a _____ future return than a stock with a price of $30 and ttm EPS of $2. A) Lower B) Higher 6) Suppose Caterpillar has a PEG of 1.5 and a dividend yield of 4%, and Deere has a PEG of 2 and a dividend yield of 3%. Then A) Caterpillar stock is more attractive B) Deere stock is more attractive C) Each has one advantage over the other 7) If a stock has a P/B _______, the company should expect increasing competition in their industry from new startup companies. A) Much less than one B) Much greater than one 8) Stocks in which industry probably have higher P/B ratios in an efficient market? A) Electric utility B) Computer software 9) You observe that over the past 3 months, insiders have purchased 10,000 shares, and other insiders have sold 10,000 shares. Based on this information, A) You should expect the stock to increase in value B) You should expect the stock to fall in value 10) There are five possible stock analyst ratings, strong buy, buy, hold, sell, and strong sell. If there are 3 buys, 2 holds, and 3 sells for IBM stock, then A) Analysts overall really think you should buy the stock B) Analysts overall really think you should hold the stock C) Analysts overall really think you should sell the stock
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11) Which age group will grow the fastest in population over the next 15 years? A)
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This note was uploaded on 03/19/2008 for the course FI 320 taught by Professor Wiggins during the Spring '08 term at Michigan State University.

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Fall_07_Exam_Solutions - Fall 07 Test 3 1) Lemonade...

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