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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
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.
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.
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
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.
6.
Which of the following is
not
one of the dividend growth rate models?
a.
the infinite growth model
b.
the zero growth model
Chapter Ten
Common Stock Valuation
119
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the constant growth model
d.
the multiple growth 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.
8.
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.
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.
10.
Under the multiple growth model, at least  different growth rates are
used.
a.
two
b.
three
c.
four
d.
five
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
12.
Which of the following is not one of the reasons two investors both using
the constantgrowth version of the DDM on the same stock might arrive at
different estimates of the stock's value?
a.
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This note was uploaded on 02/13/2012 for the course FINA 3480 taught by Professor Moore during the Fall '11 term at Toledo.
 Fall '11
 Moore
 Stock Valuation, Valuation

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