ch10 - Chapter 10 COMMON STOCK VALUATION Multiple Choice...

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Chapter 10 COMMON STOCK VALUATION Multiple Choice Questions Overview 1. All of the following are relative valuation techniques except: a. P/E ratio. b. Price/book value ratio c. Price/sales ratio d. Price/dividend ratio (d, moderate) Discounted Cash Flow Techniques 2. The estimated value of common stock is the: a. present value of all expected cash flows. b. present value of all capital gains. c. future value of all dividend payments. d. present value of all dividend payments. (a, moderate) 3. Discounted cash flow techniques used in valuing common stock are based on: a. future value analysis. b. present value analysis. c. the CAPM. d. the APT. (b, easy) The Dividend Discount Model 4. All of the following are interchangeable terms except for: a. discount rate b. coupon rate c. required rate of return d. capitalization rate (b, moderate) Chapter Ten Common Stock Valuation 119
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The Dividend Discount Model 5. Which of the following is a problem using the dividend discount model to value common stock? a. The model does not account for the risk of the stock. b. The model does not consider the present value of the dividends. c. The model does not consider that dividends may not be paid d. The model does not account for small dividends. (c, moderate) 6. Which of the following is not one of the dividend growth rate models? a. the infinite growth model b. the zero growth model c. the constant growth model d. the multiple growth model (a, moderate) 7. The constant growth dividend model uses the: a. historical growth rate in dividends. b. historical growth rate in earnings. c. estimated growth rate in dividends. d. estimated growth rate in earnings. (c, moderate) 8. The zero-growth dividend model: a. gives the highest value for a common stock. b. is the most accurate model to use. c. is equivalent to the valuation model for preferred stock. d. assumes the highest required return possible. (c, easy) Chapter Ten Common Stock Valuation 120
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9. The dividend model that is most appropriate for a young company that pays small dividends now but is expected to increase dividends in a few years is the: a. zero-growth model. b. constant growth model. c. expansion growth model. d. multiple growth model. (d, moderate) 10. Under the multiple growth model, at least ------ different growth rates are used. a. two b. three c. four d. five (a, easy) 11. The constant growth rate model of the DDM implies that: a. earnings are not relevant to stock prices. b. dividends remain constant from now to infinity. c. the stock price grows at the same rate as dividends. d. all of the above are implied by the model (c, difficult) 12. Which of the following is not one of the reasons two investors both using the constant-growth version of the DDM on the same stock might arrive at different estimates of the stock's value?
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This note was uploaded on 08/29/2009 for the course BUS Invt taught by Professor Yost during the Spring '09 term at W. Florida.

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ch10 - Chapter 10 COMMON STOCK VALUATION Multiple Choice...

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