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Early in 2013, Maria bought shares of MBA Inc

Accounting

  1. Early in 2013, Maria bought shares of MBA Inc. at $27.85 per share. She received the following dividends per share (end of year).
    2013 $1.50
    2014 $2.00
    2015 $2.50
    Immediately after receiving the the 2015 dividend, she sold the stock for $32.50 per share. Her internal rate of return on this investment was
    A) 9.17%.
    B) 10.25%.
    C) 11.99%.
    D) 13.85%.
  2. Early in 2013, Mathew is analyzing shares of Janeff Corp. He expects the following dividends per share (end of year).
    2013 $1.00
    2014 $1.25
    2015 $1.50
    He expects 2015 earnings per share to be $4.50 and Janeff's P/E ratio to be 20. His required rate of return for this stock is 12%. He should pay no more than
    A) $43.75 per share.
    B) $67.02 per share.
    C) $68.75 per share.
    D) $93.75 per share.
  3. Which of the following approaches to stock valuation is NOT based on a multiple of some figure from the financial statements?
    A) the price to cash flow approach
    B) the price to sales approach
    C) the dividends-and-earnings approach
    D) the price to earnings approach
  4. The Highlight Company has a book value of $56.50 per share, and is currently trading at a price of $59.00 per share. You are interested in investing in Highlight, and have just used a present-value based stock valuation model to calculate a present (intrinsic) value of $55.00 per share for Highlight's stock. Assuming that your calculations are correct you should
    A) buy the stock, because the current market price per share is higher than the present value.
    B) buy the stock, because the book value per share is greater than the present value.
    C) not buy the stock, because the present value is less than the market price per share.
    D) buy the stock, because the book value and the current trading price are very close to one another in value.
  5. According to the price/earnings approach to stock valuation, if the dividend growth rate is expected to drop or if the required return goes up, the net effect is a
    A) higher P/E ratio.
    B) lower P/E ratio.
    C) higher stock price.
    D) higher retention rate.
  6. The constant growth dividend valuation model works best for mature companies with a long record of paying dividends.
  7. The P/E approach is too complicated to be widely used in practice.
  8. None of the commonly used valuation approaches can assign a value to a company with no earnings.
  9. A drawback to the Price-to-Cash-Flow method of valuation is that there is no generally accepted cash flow measure.
  10. Generally speaking, the higher the Price-to-Sales ratio, the better.

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