Deck 12: Company Analysis and Stock Valuation

Question 1

Under the present value of operating free cash flow technique, the firm's operating free cash flow to the firm is discounted at the firm's

A) weighted average cost of capital.
B) cost of debt.
C) internal rate of return.
D) external cost of new equity.
E) net present value.

Answer 1

A

Question 2

Which of the following ratios is least likely to be impacted by accounting manipulation?

A) P/E
B) ROE
C) ROI
D) P/S
E) PM

Answer 2

D

Question 3

Porter contends that ____ and ____ are two important competitive strategies.

A) low cost leadership, barrier to entry
B) new entrant deterrent, differentiation
C) low cost leadership, differentiation
D) differentiation, monopolistic
E) monopolistic simulation, differentiation

Answer 3

C

Question 4

Which of the following statements concerning global company analysis is false?

A) Analysis of companies within industries should be extended to include foreign companies.
B) There is a problem in obtaining data that is required for a thorough company analysis of foreign companies.
C) Foreign companies' financial risk should be evaluated over time.
D) Differences in relative measures can be explained by the variations in accounting procedures among countries and investors' attitudes within each country.
E) None of the above (that is, all statements are true).

Question 5

Which of the following factors does not indicate market liquidity?

A) Number of shareholders
B) High price volatility
C) Number of shares outstanding
D) Number of shares traded
E) Institutional interest

Question 6

In the following list, which three factors influence the capital gain component of a growth company? (1) The firm's expected rate of growth of earning per share
(2) The amount of capital invested in growth investments
(3) The rate of return earned on the funds relative to the required rate of return
(4) The required rate of return on the security based on its systematic risk
(5) The firm's dividend payout ratio
(6) The time horizon when these growth investments will be available

A) (1), (3) and (5)
B) (2), (3) and (4)
C) (2), (3) and (6)
D) (3), (4) and (5)
E) (3), (4) and (6)

Question 7

Which of the following is not a technique for valuing a firm's common stock?

A) Present value of free cash flow to equity
B) Present value of dividends
C) Price-earnings ratio
D) Price-book value ratios
E) Price-cost of goods sold ratio

Question 8

'Economic profit' is analogous to ____ in capital budgeting.

A) weighted average cost of capital
B) internal rate of return
C) composite discount rates
D) discounted cashflows
E) net present value

Question 9

Cyclical companies are firms where

A) sales, earnings and cash flows are extremely uncertain and not necessarily related to the economy.
B) sales, earnings and cash flows are likely to withstand changes caused by the economic environment.
C) sales, earnings and cash flows are heavily influenced by aggregate business activity.
D) sales, earnings and cash flows are growing exponentially.
E) none of the above.

Question 10

A firm that follows a low cost leadership strategy

A) must heavily discount its prices.
B) must command prices near the industry average.
C) must focus on providing exceptional quality and service.
D) all of the above.
E) none of the above.

Question 11

Which of the following is not a value added performance measure?

A) Economic Value Added (EVA)
B) Market Value Added (MVA)
C) Franchise Factor
D) Company Value Added (CVA)
E) None of the above (that is, all are value added performance measures)

Question 12

Which of the following statements concerning SWOT analysis is false?

A) Strengths are the factors that give the firm a comparative advantage in the marketplace.
B) Weaknesses result when the company has potentially exploitable advantages over other firms.
C) Opportunities are environmental factors that favour the firm.
D) Threats are environmental factors that can hinder the firm in achieving its goals.
E) None of the above (that is, all statements are true).

Question 13

A growth company is one that has the ability to

A) acquire capital at a low cost and is able to invest in projects that yield an average return.
B) acquire capital at a low cost and is able to invest in projects that yield a below average return.
C) acquire capital at an average cost and is able to invest in projects that yield an above average return.
D) acquire capital at an average cost and is able to invest in projects that yield an average return.
E) acquire capital at an above average cost and is able to invest in projects that yield an average return.

Question 14

A speculative stock possesses a ____ probability of ____ return and is currently ____.

A) high, negative, underpriced
B) high, negative, overpriced
C) high, positive, overpriced
D) low, negative, overpriced
E) low, positive, underpriced

Question 15

Which of the following is not considered in the price-earnings ratio technique?

A) Firm's required rate of return on equity (k)
B) Firm's dividend payout ratio (D/E)
C) Firm's expected growth rate of dividends (g)
D) All of the above are components of P/E ratio
E) None of the above are components of P/E ratio