The most important factors influencing a stock's current price are its past earnings and dividends

1. The most important factors influencing a stock's current price are its past earnings and dividends.

FALSE

2. The key to the future behavior of a company lies in the sales growth and the net profit margin.

TRUE

3. Companies with high P/E ratios tend to also have high dividend payout ratios.

FALSE

4. Higher rates of growth and lower debt levels contribute to higher P/E ratios.

TRUE

5. A company's estimated future earnings and its P/E ratio can be used to estimate the stock's future price.

TRUE

6. The estimated price of a stock in the future is important because it includes the projected capital gain on the stock.

TRUE

7. The single most important issue in the stock valuation process is a company's
   A) past earnings record.
   B) historic dividend growth rate.
   C) expected future returns.
   D) capital structure.

C

8. Most analysts would not feel comfortable forecasting a firm's future earnings for more than
   A) the next quarter.
   B) 1 to 3 years.
   C) 4 or 5 years.
   D) the next business cycle.

B

9. The value of a stock is a function of
   A) future returns.
   B) historic dividend growth rate.
   C) most recent earnings per share.
   D) past returns.

A

10. Which of the following variables affect the P/E ratio?
    I. capital structure of a firm
    II. amount of dividends paid
    III. inflation rate
    IV. earnings rate of growth
    A) I, II and III only
    B) I, II and IV only
    C) I, III and IV only
    D) I, II, III and IV

D