Price-earnings approach to valuation

Reference no: EM13751575

Question 1: If the market multiple is 23.0 and the P/E ratio of a company is 27.4, then the stock's relative P/E is

0.84.
1.19.
3.21.
4.40.

Question 2: When an investor multiplies future estimated earnings per share by a price/earnings ratio to compute the value of a stock that investor is using the price/earnings approach to valuation.

True
False

Question 3.3. A relative P/E ratio greater than 1 indicates that a company may be undervalued.

True
False

Question 4: Markhem Enterprises is expected to earn $1.34 per share this year. The company has a dividend payout ratio of 40% and a P/E ratio of 18. What should one share of common stock in Markhem Enterprises be selling for in the market?

$9.65
$14.47
$24.12
$33.77

Question 5: Lindell, Inc. has 8% , $100 par value preferred stock outstanding. To earn 12% on an investment in this stock, you need to purchase the shares at a per share price of

$9.60.
$66.67.
$96.00.
$150.00.

Question 6: Which of the following contributes to high P/E ratios

High dividend payout ratios
High rate of earnings growth
Periods of high inflation
High debt ratios

Question 7: Which one of the following is a correct equation to calculate earnings per share?

(ROA)(book value per share)
(profit margin)(total asset turnover)(equity multiplier)(book value per share)
(profit margin)(equity multiplier)(book value per share)
(profit margin)(book value per share)

Question 8: A company has an annual dividend growth rate of 5% and a retention rate of 40%. The company's dividend payout ratio is

35%.
40%.
45%.
60%.

Question 9: The common stock of Jennifer's Furniture Outlet is currently selling at $32.60 a share. The company adheres to a 60% dividend payout ratio and has a P/E ratio of 19. There are 21,000 shares of stock outstanding. What is the amount of the annual net income for the firm?

$21,619
$36,032
$48,327
$60,053

Question 10: Which one of the following is is most likely to increase the price of a stock?

rapid growth in sales.
rapid growth in dividends.
rapid growth in earnings.
rapid increases in bond interest rates.

Question 11: Over the last year, a firm's earnings per share increased from $1.20 to $1.40, its dividends per share increased from $0.50 to $0.60, and its share price increased from $21 to $24. The firm maintained a relative P/E of 1.10 over the entire time period. Given this information, it follows that the

stock experienced an increase in its P/E ratio.
company had a decrease in its dividend payout ratio.
current P/E of the overall market is 26.4.
overall market P/E is declining.

Question 12: The rate of growth can exceed the required return during the variable-growth period without invalidating the variable growth dividend valuation model.

True
False

Question 13: Generally speaking, the higher the Price-to-Sales ratio, the better.

True
False

Question 14: The intrinsic value of a zero-growth stock is simply the capitalized value of its annual dividends.

True
False

Question 15: The price of a stock with a low relative P/E will tend to be more volatile than the price of a stock with a high relative P/E.

True
False

Question 16: Michelak's Maritime Industries has relatively stable earnings and pays an annual dividend of $2.50 per share. This dividend has remained constant over the past few years and is expected to remain constant for some time to come. If you want to earn 12% on an investment in the common stock of Michelak's, how much should you pay to purchase each share of stock?

$12.50
$18.88
$20.83
$25.00

Question 17: Generally speaking, the higher the Price-to-Sales ratio, the better.

True
False

Question 18: P/E ratios could rise even as earnings fall if

earnings fall at a faster rate than stock prices.
earnings fall at a slower rate than stock prices.
investors expect lower stock prices to be permanent.
investors expect lower earnings to be permanent.

Question 19: Most stocks trade at five to seven times their book values.

True
False

Question 20: In general, the higher the retention ratio

the higher the future growth rate of the company.
the higher the dividends per share of common stock.
the higher the future debt-equity ratio.
the lower the future book value per share.

Question 21: The intrinsic value of an asset equals the present value of all future cash flows at a given discount rate.

True
False

Question 22: As a company's beta rises, the required return on the stock should fall, all other things being equal.

True
False

Question 23: One of the easiest aspects of the dividend valuation model (DVM) is specifying the appropriate growth rate for a firm's dividends over time.

True
False

Question 24: The required rate of return denotes the minimum rate of return an investor should expect.

True
False

Question 25: James is willing to settle for a 10% rate of return on EG stock at a time when investors, on average, are requiring an 11% rate of return on the same stock. Which of the following will happen?

James will be have to pay more for the stock than he was willing to pay.
Investors with different required rates of return will pay different prices for the stock.
James will not be able to buy the stock unless the price changes.
James will be happy to buy the stock for less than he was willing to pay.

Question 26: The major forces behind earnings per share are

return on assets and book value.
return on assets and total asset turnover.
return on equity and the equity multiplier.
return on equity and book value.

Question 27: GLOO stock's P/E ratio is 45 at a time when the market's P/E ratio is 15. GLOO's realtive P/E ratio is

30.
-30.
3.
.33.

Question 28: Which of the following statements concerning the constant-growth dividend valuation model is (are) correct?

I and IV only
II and III only
I, II, and IV only
I, II and III only

Question 29: The constant growth dividend valuation model works best for mature companies with a long record of paying dividends.

True
False

Question 30: Which of the following contributes to high P/E ratios

High dividend payout ratios
High rate of earnings growth
Periods of high inflation
High debt ratios

Reference no: EM13751575

Questions Cloud

Importance of modern banking in economic process : Evaluate the importance of modern banking in the economic process. In the context of the Global Financial Crisis, what potential costs may banks impose on society. Critically assess why such costs emerge in the first place.

State the respective advantages innovative tool : State the respective advantages and disadvantages of each innovative tool. Provide your rationale for why each tool is an innovative one for enhancing projects.

Effects of issuing travel ban on ebola stricken countries : Are we able to handle a ban? How will this effect the economy if it is able to be done? Will it effect the economy at all?

Derive an efficient computation method : Discovery-driven cube exploration is a desirable way to mark interesting points among a large number of cells in a data cube. Derive an efficient computation method to identify such points during the data cube computation

Price-earnings approach to valuation : When an investor multiplies future estimated earnings per share by a price/earnings ratio to compute the value of a stock that investor is using the price/earnings approach to valuation.

Why was capitalism a good thing during the enclosement act : Why was capitalism a good thing during the enclosement act?

Demonstrate each step in communication : Compose a message for your audience using the three- step process outlined in of Business Communication Today. Demonstrate each step in your communication.

Draw a ppc graph : Draw a PPC Graph and display an Increasing Production Possibilities Curve and identify two reasons that cause the curve to shift?

Write a paper on period from reagan revolution : Write a three to four page paper on the period from the Reagan Revolution through President Obama.

User Account

All Pages