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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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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 zerogrowth 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.
zerogrowth 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.
 Spring '10
 dr.

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