Tutorial 5

4) The stock valuation process reflects afirm's:

A. expected future dividends and capital gains.

B. historic earnings record.

C. past dividends and capital gains.

D. historic dividend growth rate.

7) The Bullorbear Company hasshares of $ preferred stock outstanding.It generates an EBIT of $ million and has annual interest payments of $ million.Given this information, determine the fixed charge coverage of the preferred stockassume the dividends qualify for the preferential tax rate.Given the firm also has $ million in depreciation and amortization, use EBITDA to find the fixed charge coverage of this preferred.Assume a corporate tax rate of 35%.

The fixed charge coverage of the preferred stock is(?).(Round to two decimal places.)

Tutorial 6

1) Holding constant all other variables and excluding any interactions among the determinants ofvalue, which of the following would most likely increase afirm's price-to earningsmultiple?

(Select the best answerbelow.)

A. The beta of the stock increases.

B. The risk premium increases.

C. The retention rate increases.

2) A rationale for the use ofprice-to-sales (P/S) approachis:

(Select the best answerbelow.)

A. Sales are more volatile than earnings.

B. Revenues are less subject to acounting manipulation than earnings.

C. P/S ratios assess cost structures accurately.

3) A cyclical company tendsto:

(Select the best answerbelow.)

A. have less volatile earnings than the overall market.

B. have earnings that track the overall economy.

C. have a highprice-to-earnings ratio.

4) Consider a company that earned$4.00 per share last year and paid a dividend of$1.00. The firm has maintained a consistent payout ratio over the years and analysts expect this to continue. The firm is expected to earn$4.40 per share nextyear, and the stock is expected to sell for$30.00. The required rate of return is12%. What is the best estimate of thestock's currentvalue?

(Select the best answerbelow.)

A. $27.77

B. $44.00

C. $22.67

5) Astock's current dividend is$1.00 and its expected dividend is$1.10 next year. If theinvestor's required rate of return is15% and the stock is currently trading at$20.00, what is the implied expected price in oneyear?

(Select the best answerbelow.)

A. $22.00

B. $23.00

C. $21.90

6) A firm has total revenues of$187,500, net income of$15,000, total current liablities of $50,000, total common equity of$75,000, and total assets of$150,000. What is thefirm's ROE?

(Select the best answerbelow.)

A. 24%

B. 15%

C. 20%

7) A stock currently pays a dividend of$2.00 per share. Expected dividend growth is 20% for the next 3 years and then is expected to revert to7% thereafter indefinitely. The required rate of return on this stock is15%. Thestock's current intrinsic valueis:

(Select the best answerbelow.)

A. $165.63

B. $36.93

C. $6.54

8) Which of the following would provide the most compelling evidence contradicting the semi-strong form of the efficient marketshypothesis?

(Select the best answerbelow.)

A. Transactions costs are high.

B. LowP/E stocks have positivelong-term abnormal returns.

C. Approxiamately half of professionally managed funds outperform the overall market.

9) Thestrong-form efficient markethypothesis:

(Select the best answerbelow.)

A. assumes that certain groups have access to privileged information.

B. assumes that no one has an informational advantage.

C. directly challenges the methods of technical analysis.