A companys current ROE is 12 per cent. An analyst assumes the company ROE will grow indefinitely at a rate of 2 per cent. The cost of equity is 10 per cent. Under these assumptions, what is the estimated equity value-to-book multiple of this company?

a.

1.00

b.

1.10

c.

1.12

d.

1.25

The financial performance of many firms is generally ____ to the economic cycle:

a.

Robust.

b.

Sensitive.

c.

Random.

d.

Mean-reverting.

A firms debt rating indicates the likelihood that a firm:

a.

Can meet payments required under the yield.

b.

Can meet its interest payments.

c.

Can meet its principal payments.

d.

Can meet both its interest and principal payments.

Clear my choice

As long as the analyst makes the same assumptions about company fundamentals, the value estimates under any valuation derived from the dividend discount model will:

a.

Be different.

b.

Identical for abnormal earnings and discounted cash flow, but different for discounted dividends.

c.

Identical for discounted dividends and discounted cash flow, but different for abnormal earnings.

d.

Be identical.