P/E ratios could rise even as earnings fall if A) earnings fall at a faster rate than stock prices

1. P/E ratios could rise even as earnings fall if
   A) earnings fall at a faster rate than stock prices.
   B) earnings fall at a slower rate than stock prices.
   C) investors expect lower stock prices to be permanent.
   D) investors expect lower earnings to be permanent.

A

2. Even if a company does not officially follow a fixed-dividend policy, dividend payments are
   A) extremely difficult to predict.
   B) very volatile and subject to economic conditions.
   C) fairly stable from one time period to another.
   D) directly tied to a company's P/E ratio.

C

3. Whisper numbers are
   A) officially published forecast numbers provided by company management.
   B) the official released estimates prepared by financial analysts.
   C) generally less accurate than the released estimates by analysts.
   D) generally higher than the released analysts' forecasts.

D

4. 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
   A) 0.84.
   B) 1.19.
   C) 3.21.
   D) 4.40.

B

5. The current annual sales of Flower Bud, Inc. are $178,000. Sales are expected to increase by 4% next year. The company has a net profit margin of 5% which is expected to remain constant for the next couple of years. There are 10,000 shares of common stock outstanding. The market multiple is 16.4 and the relative P/E of the firm is 1.21. What is the expected market price per share of common stock for next year?
   A) $15.18
   B) $17.66
   C) $18.37
   D) $19.29

C

6. The major forces behind earnings per share are
   A) return on assets and total asset value.
   B) gross revenue and the stock price.
   C) growth and the number of shares outstanding.
   D) net income and the number of shares outstanding.

D

7. GLOO stock's P/E ratio is 45 at a time when the market's P/E ratio is 15. GLOO's relative P/E ratio is
   A) 30.
   B) -30.
   C) 3.
   D) .33.

C

8. Which one of the following is a correct equation to calculate earnings per share?
   A) (ROA)(book value per share)
   B) (profit margin)(total asset turnover)(equity multiplier)(book value per share)
   C) (profit margin)(equity multiplier)(book value per share)
   D) (profit margin)(book value per share)

B

9. Which one of the following is is most likely to increase the price of a stock?
   A) rapid growth in sales.
   B) rapid growth in dividends.
   C) rapid growth in earnings.
   D) rapid increases in bond interest rates.

C

10. Global Warning's EPS for the current year is $2.75 and its current P/E ratio is 50. You have forecasted that EPS will grow by 10% but the P/E ratio will fall to 40. What do you expect the price of a share of GW's stock to be at the end of next year?
    A) $110
    B) $121
    C) $137.50
    D) $151.25

B