Module 5-6

The NASDAQ Composite includes a. all of the stocks listed on the NASDAQ Stock Exchange. b. 30 of the largest (market capitalization) and most active companies in the U.S. economy. c. 500 firms that are the largest in their respective economic sectors. d. 500 firms that are the largest as ranked by Fortune Magazine.

a

The Standard & Poor's 500 Index includes a. 500 firms that are the largest in their respective economic sectors. b. 500 firms that are the largest as ranked by Fortune Magazine. c. all of the stock listed on the New York Stock Exchange. d. 30 of the largest (market capitalization) and most active companies in the U.S. economy.

a

The dividend discount model: a. is a valuation approach based on future dividend income. b. is a hybrid security that has characteristics of both long-term debt and common stock. c. expects to have above average rates of growth in revenue, earnings, and/or dividends. d. none of the above.

a

The size of the firm measured as the current stock price multiplied by the number of shares outstanding is referred to as the firm's a. market capitalization. b. book value. c. market makers. d. constant growth model.

a

Which of the following is a technique for evaluating capital projects that tells how long it will take a firm to earn back the money invested in a project? a. Payback b. Internal rate of return c. Net present value d. Profitability index

a

Why is the ask price higher than the bid price? a. It represents the gain a market maker achieves. b. It represents the gain the stock seller achieves. c. It represents the gain the stock buyer achieves. d. It represents the gain all participants will achieve.

a

Investors sell stock at the a. dealer price. b. bid price. c. quoted ask price. d. broker price.

b

Stock valuation model dynamics make clear that lower discount rates lead to a. lower valuations. b. higher valuations. c. lower growth rates. d. higher growth rates.

b

We can estimate a stock's value by a. using the book value of the total stockholder equity section. b. discounting the future dividends and future stock price appreciation. c. compounding the past dividends and past stock price appreciation. d. using the book value of the total assets divided by the number of shares outstanding.

b

Which of the following is a technique for evaluating capital projects that tells how long it will take a firm to earn back the money invested in a project plus interest at market rates? a. Payback b. Discounted payback c. Net present value d. Profitability index

b

Which of the following will only be executed if the order's price conditions are met? a. a trade b. a limit order c. an unlimited order d. a spread

b

Which of these investors earn returns from receiving dividends and from stock price appreciation? a. investment bankers b. stockholders c. bondholders d. managers

b

A variable growth rate: a. is a valuation technique used when a firm's current growth rate is expected to change sometime in the future. b. combines the present-value cash flow equation and the constant-growth-rate model equation. c. both a and b d. neither a or b

c

Investors buy stock at the a. bid price. b. dealer price. c. quoted ask price. d. broker price.

c

Many companies grow very fast at first, but slower future growth can be expected. Such companies are called a. Fortune 500 companies. b. blue chip companies. c. variable growth rate firms. d. constant growth rate firms.

c

Neither payback period nor discounted payback period techniques for evaluating capital projects account for a. time value of money. b. market rates of return. c. cash flows that occur after payback. d. cash flows that occur during payback.

c

Which of the following statements regarding discounted payback (DPB) is/are not true? a. It ignores any cash flows that accrue after the project reaches its respective payback benchmark. b. Is a capital budgeting method that generates decision rules and associated metrics that choose projects based on how quickly they return their initial investment plus interest. c. both a and b are not true. d. none of the above.

c

Which of the following statements regarding payback (PB) is/are true? a. The statistic requires keeping a running subtotal of the cumulative sum of the cash flows up to the point that this sum exactly offsets the initial investment. b. Is a capital budgeting technique that generates decision rules and associated metrics for choosing projects based on how quickly they return their initial investment. c. both a and b are true d. none of the above

c

Which of these describe groups or pairs of projects where you can accept one but not all? a. Dependent b. Independent c. Mutually exclusive d. Mutually dependent

c

Which rate-based decision statistic measures the excess return (the amount above and beyond the cost of capital for a project), rather than the gross return? a. Internal rate of return (IRR) b. Modified internal rate of return (MIRR) c. Profitability index (PI) d. Net present value (NPV)

c

All capital budgeting techniques a. render the same investment decision. b. use the same measurement units. c. include all crucial information. d. exclude some crucial information.

d

As residual claimants, which of these investors claim any cash flows to the firm that remain after the firm pays all other claims? a. creditors b. bondholders c. preferred stockholders d. common stockholders

d

At any given time, the market value of a firm's common stock depends upon: a. The company's profitability and the growth prospects for the future. b. The current market interest rates and the conditions in the overall stock market. c. Only b d. Both a and b

d

Of the capital budgeting techniques discussed, which works equally well with normal and non-normal cash flows and with independent and mutually exclusive projects? a. Payback period b. Discounted payback period c. Modified internal rate of return d. Net present value

d

We often use the P/E ratio model with the firm's growth rate to estimate a. required rates of return. b. inflation. c. a stock's current price. d. a stock's future price.

d

When choosing a capital budgeting technique(s) to use, which of the following sub-choices is affected? a. the statistical format chosen b. the benchmark used to compare with c. computations using or not using time value of money d. all of the above

d

When residual cash flows are high, stock values will be a. low. b. unpredictable. c. unchanged. d. high.

d

Which of these are sets of cash flows where all the initial cash flows are negative and all the subsequent ones are either zero or positive? a. Expected cash flows b. Time line cash flows c. Non-normal cash flows d. Normal cash flows

d