Chaminade Univ MBA 754 (Investment Mgmt) Week 8 – Ch 08 Homework (Graded)

rading SummaryQuestion
Type: # Of Questions: # Correct:True/False 11 Multiple Choice 19

Grade
Details – All QuestionsQuestion 1. Question : Which of the following
contributes to high P/E ratios
Student
Answer: High dividend payout ratios
High
rate of earnings growth
Periods
of high inflation
High
debt ratios

Question
2. Question : A company that wants to maintain both a constant growth rate in
dividends and a constant payout ratio will have to
Student
Answer: grow earnings faster than dividends.
increase
assets at the same rate as dividends.
grow
earnings at the same rate as dividends.
increase
stockholders’ equity at the same rate as dividends.

Question
3. Question : There is no assurance that the actual rate of return on an asset
will be similar to the projected rate of return.
Student
Answer: True False

Question
4. Question : The constant-growth dividend valuation model is best suited for
use with
Student
Answer: stocks of new or emerging companies.
small-cap
stocks within growing industries.
the
stocks of mature, dividend-paying companies.
the
stocks of cyclical companies.

Question
5. Question : There is no assurance that the actual rate of return on an asset
will be similar to the projected rate of return.
Student
Answer: True False

Question
6. Question : Most stocks trade at five to seven times their book values.
Student
Answer: True False

Question
7. Question : In the price/earnings approach to stock valuation,
Student
Answer: historical stock prices are utilized.
forecasted
EPS are typically used.
the
P/E ratio is computed by multiplying the stock price by the earnings per share.
the
market P/E ratio, adjusted by beta, is used to value individual stocks.

Question
8. Question : 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
Student
Answer: 30.
-30.
3.
.33.

Question
9. Question : The subjective approach to determining a required rate of return
for a stock includes
Student
Answer: I and III only
II and
IV only
I, II
and IV only
I, II
and III only

Question
10. Question : Which of the following will most directly influence a company’s
market value?
Student
Answer: The state of the economy.
The
book value of its assets.
The
use of financial leverage.
Its
future cash flows.

Question
11. Question : The intrinsic value of a stock provides a purchase price for the
stock
Student
Answer: that is reasonable given the associated level of risk.
which
will assuredly yield the anticipated capital gain.
which
will guarantee the expected rate of return.
that
is always below the market value but yet yields the expected rate of return.

Question
12. Question : A stock’s internal rate of return (IRR) is the discount rate
that cause the present value of future dividends to equal the price of the
stock.
Student
Answer: True False

Question
13. Question : If net income rises, but the number of shares outstanding
remains the same, EPS will rise.
Student
Answer: True False

Question
14. Question : 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?
Student
Answer: $21,619
$36,032
$48,327
$60,053

Question
15. Question : Which of the following characteristics appeal to so-called value
investors?
Student
Answer: I and II only
I and
III only
I, II
and IV only
II,
III and IV only

Question
16. Question : The dividend valuation model (DVM) is very sensitive to the
growth rate (g) being used, because it affects both the model’s numerator and
its denominator.
Student
Answer: True False

Question
17. Question : The key to the future behavior of a company lies in the sales
growth and the net profit margin.
Student
Answer: True False

Question
18. Question : Which one of the following is a correct equation to calculate
earnings per share?
Student
Answer: (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
19. Question : 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.
Student
Answer: True False

Question
20. Question : Stephanie is an investor who believes that the real key to a
company’s future stock price lies in its future earnings. When investing in a
company, she carefully studies its future earnings potential, and sells a
company’s stock at the first sign of any trouble. This information indicates
that Della would correctly be classified as
Student
Answer: a growth investor.
a
value investor.
a
buy-and-hold investor.
an
index investor.

Question
21. Question : Newton, Inc. just paid an annual dividend of $0.95 . Their
dividends are expected to increase by 4% annually. Newton Company stock is selling
for $11.54 a share. What is the capitalization rate on this stock?
Student
Answer: 8.23%
12.2%
12.6%
13.9%

Question
22. Question : Whisper numbers are
Student
Answer: officially published forecast numbers provided by company management.
the
official released estimates prepared by financial analysts.
generally
less accurate than the released estimates by analysts.
generally
higher than the released analysts’ forecasts.

Question
23. Question : The rate of dividend growth can be estimated by multiplying the
return on equity rate by the dividend payout ratio.
Student
Answer: True False

Question
24. Question : The constant-growth dividend valuation model is best suited for
use with
Student
Answer: stocks of new or emerging companies.
small-cap
stocks within growing industries.
the
stocks of mature, dividend-paying companies.
the
stocks of cyclical companies.

Question
25. Question : One stock valuation model holds that the value of a share of
stock is a function of its future dividends, and that the dividends will
increase at an annual rate which will remain unchanged over time. This stock
valuation model is known as the
Student
Answer: approximate yield model.
holding
period return model.
dividend
reinvestment model.
constant
growth dividend valuation model.

Question
26. Question : The rate of growth can exceed the required return during the
variable-growth period without invalidating the variable growth dividend
valuation model.
Student
Answer: True False

Question
27. Question : A stock’s internal rate of return (IRR) is the discount rate
that cause the present value of future dividends to equal the price of the
stock.
Student
Answer: True False

Question
28. Question : The subjective approach to determining a required rate of return
for a stock includes
Student
Answer: I and III only
II and
IV only
I, II
and IV only
I, II
and III only

Question
29. Question : Which of the following characteristics appeal to so-called value
investors?
Student
Answer: I and II only
I and
III only
I, II
and IV only
II,
III and IV only

Question
30. Question : 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?
Student
Answer: $12.50
$18.88
$20.83
$25.00