Chap018 - Chapter 18 Equity Valuation Models Multiple...

Chapter 18 Equity Valuation Models
Multiple Choice Questions
1. ________ is equal to the total market value of the firm's common stock divided by (the
replacement cost of the firm's assets less liabilities).
A) Book value per share
B) Liquidation value per share
C) Market value per share
D) Tobin's Q
E) None of the above.
Answer: D Difficulty: Easy
Rationale: Book value per share is assets minus liabilities divided by number of
shares. Liquidation value per share is the amount a shareholder would receive in the
event of bankruptcy. Market value per share is the market price of the stock.
2. High P/E ratios tend to indicate that a company will _______, ceteris paribus.
3. _________ is equal to (common shareholders' equity/common shares outstanding).
1

Chapter 18 Equity Valuation Models
4. ________ are analysts who use information concerning current and prospective
profitability of a firms to assess the firm's fair market value.
5. The _______ is defined as the present value of all cash proceeds to the investor in the
stock.
A) dividend payout ratio
B) intrinsic value
C) market capitalization rate
D) plowback ratio
E) none of the above
Answer: B Difficulty: Easy
Rationale: The cash flows from the stock discounted at the appropriate rate, based on
the perceived riskiness of the stock, the market risk premium and the risk free rate,
determine the intrinsic value of the stock.
6. _______ is the amount of money per common share that could be realized by breaking
up the firm, selling the assets, repaying the debt, and distributing the remainder to
shareholders.
2

Chapter 18 Equity Valuation Models