1. Which one of these formulas is used to estimate a firm's growth rate?
A. Annual dividend/Current stock price
B. (1 - Dividend payout ratio) × g
C. Retention ratio × ROE
D. Retention ratio × ROA
E. 1 - Dividend payout ratio
2. The total return on a stock is equal to:
A. the annual dividend divided by the current stock price.
B. the difference between the capital gains yield and the dividend yield.
C. the capital gains yield plus the dividend yield.
D. (1 + Dividend yield ) × (1 + Inflation rate).
E. (1 + Capital gains yield) × (1 + Dividend yield).
3. Assume you are using the total payout method for determining the price of a share of stock. When computing the total present value, the total payout is divided by the:
A. required rate of return minus the dividend growth rate.
B. average investor's required rate of return.
C. dividend growth rate.
D. sum of the dividend growth rate and the net income growth rate.
E. required rate of return minus the net income rate of growth.
4. According to finance professionals, which one of these factors has the biggest impact on a firm's PE ratio?
A. Accounting practices of the firm
B. Risk-level of the firm
C. Size of the firm
D. Growth opportunities
E. Age of the firm
5. The EV/EBITDA ratio has an advantage over the PE ratio in situations where comparisons are being made of firms that vary based on their:
A. method of depreciation.
B. rate of growth.
C. degree of leverage.
D. level of cash.
E. sales level.
6. The free cash flow model, as compared to other models, tends to be most helpful when valuing a share of stock in:
A. a firm that pays dividends that increase at a constant rate of growth.
B. various firms having similar growth opportunities.
C. a non-dividend paying firm that has external financing needs.
D. a firm that plans to lower its dividend growth rate in the future.
E. a firm that pays a fixed annual dividend.
7. Multiple classes of stock are primarily created to:
A. allow certain shareholders to retain control of a firm.
B. replace cash dividends with share repurchases.
C. allow common stock to have cumulative privileges.
D. eliminate preemptive rights.
E. ensure all shareholders have equal rights.