# Which of the following valuation measures is often

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FIN 351 FINAL REVIEW SHEET.docx

Which of the following valuation measures is often used to compare firms that from FIN 351 at Pace University

4 .   A firm is expected to produce earnings next year of \$ 3 per share . It plans to reinvest 25 % of its earnings at 20 % . If the cost of equity is 11 % , what should be the value of the stock ?
a . \$ 70
b . \$ 27.27
c . \$ 66.67
d . \$ 37.50
5 .   Which of the following valuation measures is often used to compare firms that have no earnings ?
6 .   A firm has a stock price of \$ 54.75 per share . The firm ’s earnings are \$ 75 million , and the firm has 20 million shares outstanding . The firm has an ROE of 15 % and a plowback of 65 % . What is the firm ’s PEG ratio ?
7 .   If a firm has a free cash flow equal to \$ 48.54 million , which is expected to grow at 3 % forever . What is the total firm value given a WACC of 9.5 % ?
8 .   The greatest value to an analyst from calculating a stock ’s intrinsic value is ______.
a . How the process forces analysts to understand the critical variables that the greatest impact on value
b . The precision of the value estimate
c . How all the different models typically yield identical value results
d . How easy it is to come up with accurate model inputs
9 .   Ace Ventura , Inc. , has expected earnings of \$ 5 per share for next year . The firm ’s ROE is 15 % , and its earnings retention ratio is 40 % . If the firm ’s market capitalization rate is 10 % , what is the present value of its growth opportunities ?
10 .   The free cash flow to the firm is \$ 300 million in perpetuity , the cost of equity equals 14 % , and the WACC is 10 % . If the market value of the debt is \$ 1 billion , what is the value of the equity using the free cash flow valuation approach ?
11 .   The free cash flow to the firm is reported as \$ 275 million . The interest expense to the firm is \$ 60 million . If the tax rate is 35 % and the net debt of the firm increased by \$ 33 million , what is the free cash flow to the equity holders of the firm ?
12 .   The EBIT of a firm is \$ 300 , the tax rate is 35 % , the depreciation is \$ 20 , capital expenditures are \$ 60 , and the increase in net working capital is \$ 30 . What is the free cash flow to the firm ?
a . \$ 305
b . \$ 85
c. \$ 125
d . \$ 185
13 .   Sanders , Inc. , paid a \$ 4 dividend per share last year and is expected to continue to pay out 60 % of its earnings as dividends for the foreseeable future . If the firm is expected to generate a 13 % return on equity in the future , and if you require a 15 % return on the stock , the value of the stock is _______.
14 .   A firm is planning on paying its first dividend of \$ 2 three years from today . After that , dividends are expected to grow at 6 % per year indefinitely . The stock ’s required return is 14 % . What is the intrinsic value of a share today ?
15 .   The free cash flow to the firm is reported as \$ 198 million . The interest expense to the firm is \$ 15 million . If the tax rate is 35 % and the net debt of the firm increased by \$ 20 million , what is the approximate market value of the firm if the FCFE grows at 3 % and the cost of equity is 14 % ?
16 .   Firms with higher expected growth rates tend to have P/E ratios that are ___ __ the P/E ratios of firms with lower expected growth rates .
a . Higher than
5.Which of the following valuation measures is often used to compare firms that have no earnings?a.Price-to-cash-flow ratiob.P/E ratioc.Price-to-book ratiod.Price-to-sales ratio
6.A firm has a stock price of \$54.75 per share. The firm’s earnings are \$75 million, and the firm has 20 million shares outstanding. The firm has an ROE of 15% and a plowback of 65%. What is the firm’s PEG ratio?
7.If a firm has a free cash flow equal to \$48.54 million, which is expected to grow at 3% forever. What is the total firm value given a WACC of 9.5%?
8.The greatest value to an analyst from calculating a stock’s intrinsic value is ______.
9.Ace Ventura, Inc., has expected earnings of \$5 per share for next year. The firm’s ROE is 15%, and its earnings retention ratio is 40%. If the firm’s market capitalization rate is 10%, what is the present value of its growth opportunities?a.\$50b.\$25c.\$100d.\$75
10. The free cash flow to the firm is \$300 million in perpetuity, the cost of equity equals 14%, and the WACC is 10%. If the market value of the debt is \$1 billion, what is the valueof the equity using the free cash flow valuation approach?
11. The free cash flow to the firm is reported as \$275 million. The interest expense to the firm is \$60 million. If the tax rate is 35% and the net debt of the firm increased by \$33 million, what is the free cash flow to the equity holders of the firm?
12. The EBIT of a firm is \$300, the tax rate is 35%, the depreciation is \$20, capital expenditures are \$60, and the increase in net working capital is \$30. What is the free cash flow to the firm?
13. Sanders, Inc., paid a \$4 dividend per share last year and is expected to continue to pay out 60% of its earnings as dividends for the foreseeable future. If the firm is expected to generate a 13% return on equity in the future, and if you require a 15% return on the stock, the value of the stock is _______.a.\$26.67b.\$59.89c.\$35.19d.\$42.94
14. A firm is planning on paying its first dividend of \$2 three years from today. After that, dividends are expected to grow at 6% per year indefinitely. The stock’s required return is 14%. What is the intrinsic value of a share today?