stocks1 - File: Ch. 10, Chapter 10: Common Stock Valuation...

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File: Ch. 10, Chapter 10: Common Stock Valuation Multiple Choice Questions 1. The relative valuation measure that is most heavily utilized by market participants today is: a. P/E ratio. b. Price/book value ratio c. Price/sales ratio d. E/P ratio\ Ans: a Difficulty: moderate Ref: Overview 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. Ans: a Difficulty: moderate Ref: Discounted Cash Flow Techniques 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. Ans: b Difficulty: easy Ref: Discounted Cash Flow Techniques 4. All of the following are interchangeable terms except for: Chapter Ten Common Stock Valuation 119

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a. discount rate b. coupon rate c. required rate of return d. capitalization rate Ans: b Difficulty: moderate Ref: 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. Ans: c Difficulty: moderate Ref: The Dividend Discount Model 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 Ans: a Difficulty: moderate Ref: The Dividend Discount Model 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. Ans: c Difficulty: moderate Ref: The Dividend Discount Model Chapter Ten Common Stock Valuation 120
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. Ans: c Difficulty: easy Ref: The Dividend Discount Model 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. Ans: d Difficulty: moderate Ref: The Dividend Discount Model 10. Under the multiple growth model, at least ------ different growth rates are used. a. two b. three c. four d. five Ans: a Difficulty: easy Ref: The Dividend Discount Model 11. The constant growth rate model of the DDM implies that: a. earnings are not relevant to stock prices. b.

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This note was uploaded on 04/20/2010 for the course FCBA MBA608 taught by Professor Dr. during the Spring '10 term at Baptist College of Health Sciences.

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stocks1 - File: Ch. 10, Chapter 10: Common Stock Valuation...

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