Practice Exam3

# Practice Exam3 - Practice Problems Exam 3 Equity Valuation and Financial Statement Analysis 1 are analysts who use information concerning current

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Practice Problems – Exam 3 Equity Valuation and Financial Statement Analysis 1. __________ are analysts who use information concerning current and prospective profitability of a company to assess its fair market value. a. credit analysts B. fundamental analysts c. systems analysts d. technical analysts 2. Annie's Donut Shops, Inc. has expected earnings of \$3.00 per share for next year. The firm's ROE is 18% and its earnings retention ratio is 60%. If the firm's market capitalization rate is 12%, what is the value of the firm excluding any growth opportunities? A. \$25.00 b. \$50.00 c. \$83.33 d. \$208 3. Assuming all other factors remain unchanged, __________ would increase a firm's price/earnings ratio. a. an increase in the dividend payout ratio B. a reduction in investor risk aversion c. an expected increase in the level of inflation d. an increase in the yield on treasury bills 4. A firm has an ROE of 20% and a market-to-book ratio of 2.38. Its P/E ratio is __________. a. 8.40 B. 11.90 c. 17.62 d. 47.60

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The financial statements of Burnaby Mountain Trading Company are given below. Note: The common shares are trading in the stock market for \$27 each. 5. The firm's financial leverage ratio for 2005 is __________. A. 1.30 b. 1.50 c. 1.69 d. 2.83
6. A firm has an ROA of 19%, a debt/equity ratio of 1.8, a tax rate of 30%, and the interest rate on its debt is 7%. Its ROE is __________. a. 15.12% B. 28.42% c. 37.24% d. 40.60% 7. A firm has an ROE of 3%, a debt/equity ratio of 0.5, a tax rate of 40%, and the interest rate on its debt is 10%. Its ROA is __________. a. 4%

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## This note was uploaded on 11/21/2010 for the course BBA ECON 4313 taught by Professor Profwong during the Spring '10 term at HKU.

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Practice Exam3 - Practice Problems Exam 3 Equity Valuation and Financial Statement Analysis 1 are analysts who use information concerning current

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