Test for Chapter 9

The rate at which a stock's price is expected to appreciate (or depreciate) is called the _____ yield

• dividend

• current

• earnings

• capital gains

• total

A stock's PE ratio is primarily affected by which three factors?

• Risk, opportunities, accounting practices

• Dividend yield, capital gains yield, and opportunities

• Market rate of return, risk, opportunities

• Accounting practices, opportunities, and the market rate of return

• Accounting practices, market rate of return, risk

The total return on a stock is equal to the

• growth rate of the dividends

• dividend growth rate minus the dividend yield

• dividend yield plus the dividend growth rate

• dividend yield minus the capital gains yield

• dividend divided by the sum of the dividend yield and capital gains yield

What amount of a firm's cash should be included in the enterprise value?

• The average cash balance over the past three years

• Only the amount necessary to maintain a constant EV/EBITDA ratio

• None of the cash should be included

• Somewhere between 25 and 50 percent at the user's discretion

• Only the amount needed to run the business

One advantage of the EV/EBITDA ratio over the PE ratio is the

• increased reliance on leverage

• inclusion of depreciation charges

• averaging of annual sales

• inclusion of all the firm's cash reserves

• lessened impact of leverage on the ratio

Next year's annual dividend divided by the current stock price is called the

• total yield

• capital gains yield

• earnings yield

• yield to maturity

• dividend yield

A forward PE is generally based on the projected

• earnings for the upcoming quarter

• average earnings for the next three years

• stock price in one year

• earnings for the next year

• average earnings for the next five years

You recently contacted a brokerage rm and purchased 100 shares of stock. The brokerage rm acquired the shares for you by making a deal with a oor broker who represented one of the stock issuer's shareholders. Given this, you know your purchase

• involved the issuance of new shares

• was conducted in the secondary market

• occurred over-the-counter

• occurred on an ECN

• was for shares of a stock listed on NASDAQ

Enterprise value equals the

• combined market value of debt and equity

• combined market value of debt and equity minus excess cash

• market value of equity minus the market value of debt plus excess cash

• market value of debt plus the book value of equity minus excess cash

• combined book value of debt and equity minus excess cash

Which one of these factors generally has the greatest impact on a firm's PE ratio?

• Required rate of return

• Depreciation method used by the firm

• The overall risk level of the current firm

• Current dividends

• Future opportunities