Chapter 6: Stock Evaluation

In a stock price quote, the ask price is ______ the bid price.

higher than

How to calculate retention ratio?

percent dividend growth rate / ROE

Which of the following are cash flows to investors in stocks? (Select 2) -Dividends -Sale Price -Interest -Fees`

Answer: -Dividends -Sale Price

The increase in earnings is a function of which of the following? -Return on retained earnings -Total Investment -Retained Earnings -Depreciation

Answer: -Return on retained earnings -Retained earnings

A zero-growth model for stock valuation is distinguished by a ____. -zero stock price at year 0 -a constant discount rate -constant dividend amount -negative dividend growth rate

Answer: -constant dividend amount

The constant-growth model assumes that _________. (select 1) -dividends change at a constant rate -debt remains constant -stock prices remain constant

Answer: -dividends change at a constant rate

In a stock price quote, the number of shares outstanding multiplied by the current price per share is known as the ____. -market cap -days ranger -bid price -ask price

Answer: Marker cap

Which method is most helpful when computing the stock price of a non-dividend paying firm with external financing needs? -comparable method -free cash flow method -dividend discount model

-Free cash flow model

All else constant, the dividend yield will increase if the stock price ____. -increase -decrease

Decrease

The value of a firm is the function of its __________________ rate and its _______________ rate.

Growth; Discount

True or False: We can estimate the anticipated return on current retained earnings by using the historical RETURN ON EQUITY

TRUE