To use the Price-to-Sales valuation approach you also need to know the after tax profit margin

1. To use the Price-to-Sales valuation approach you also need to know the after tax profit margin.

FALSE

2. The price-to-cash-flow method of stock valuation generally
   A) uses either EBITDA or operating cash flow from the cash flow statement as a measure of cash flow.
   B) relies on historical cash flows.
   C) produces a cash flow multiple that is greater than the P/E multiple.
   D) applies the P/E multiple to the cash flow per share value.

A

3. For which one of the following situations will the price to sales valuation model work but the dividend and cash flow models will not?
   A) mature firm with minimal growth opportunities
   B) water-powered electric utility company
   C) newly-formed biotechnology company with negative earnings
   D) top-performing firm in a mature industry

C

4. For which one of the following situations will the dividend-growth models work especially well?
   A) mature firm with a policy of increasing its earnings and dividends at an average rate of 5% per year.
   B) a company with highly variable earnings and a policy of maintaining a constant 50% payout ratio
   C) a company that intends to pay out all of its earnings as dividends.
   D) a company that is widely viewed as an attractive takeover target.

A

5. EBITDA is an acronym for
   A) Earnings Based Information, Total Development Approach.
   B) Ernst, Bostwick, Davenport, Innes Approach.
   C) Earnings Before Interest, Taxes, Depreciation, and Amortization.
   D) Earnings Before Interest, Taxes, Dividends, and Asset replacement.

C

6. A firm with a price to sales ratio of 1 would usually be considered
   A) overvalued.
   B) correctly valued.
   C) near bankruptcy.
   D) undervalued.

D