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Financial analysis

Directions: Choose the correct answer by highlighting the answer with yellow marker from the MS Word program (You can also use a separate sheet, but make sure to number your answers clearly).

There are 20 multiple choice questions.

Chapter 6 (Brealey et al)

1. The dividend discounted cash-flow model states that today's stock price equals the _______ of all expected future dividends.
a. Future value
b. Present value
c. Investments
d. Announcements

2. Growth stocks typically pay higher dividends in the short term than income stocks.
a. True
b. False

3. Stocks with high P/E ratios suggest that the growth prospects are high or earnings are temporarily depressed.
a. True
b. False

4. Technical analysts are investors who attempt to identify undervalued stocks by reviewing__________.
a. Press releases
b. Fundamental research
c. Patterns in past stock prices
d. Insider transactions
e. New technology products and services

5. The random walk theory states that history of stock prices will predict future returns.
a. True
b. False

6. The efficient market theory states that the price of a security will reflect all available information.
a. True
b. False.

7. A preferred stock has an annual dividend of $8 into perpetuity. The discount rate is 12%. At what price should the preferred stock sell?
a. 56.67
b. 66.67
c. 76.67
d. 86.67

8. XYZ Company paid an annual dividend of $1 yesterday. You expect the dividend to grow steadily at a rate of 4% per year. If the discount rate is 12%, at what price will the stock sell?
a. 13
b. 23
c. 33
d. 43
e. 53

9. If the payout ratio is 0.25, then the plowback ratio is
a. 0.25
b. 0.50
c. 0.75
d. 1.25

Chapter 12

10. Capital structure refers to the mix of long-term debt and equity financing of a company.
a. True
b. False

11. WACC is a way of estimating a company's cost of capital.
a. True
b. False

12. CAPM can be used as one estimate of the cost of equity for a publicly traded company.
a. True
b. False

Chapter 16

13. If you hold the security of a stock that goes ex-dividend on January 30, 200X when is the earliest date you can sell it and still receive your dividend?
a. 01/29/0X
b. 01/30/0X
c. 01/31/0X

14. A stock split effectively decreases the number of shares outstanding.
a. True
b. False

15. A share repurchase program can effectively be similar to a cash dividend.
a. True
b. False

Chapter 23

16. The spot rate of exchange is the exchange rate for a future transaction.
a. True
b. False

17. You can hedge your foreign exchange exposures by using forward contracts.
a. True
b. False

18. NPV cannot be used in capital budgeting for international projects.
a. True
b. False

19. The cost of capital or expected cash flows for foreign projects can be adjusted to reflect higher risk levels in the capital budgeting process.
a. True
b. False

20. An example of political risk in foreign investment is
a. the spot rate of the FX increases
b. the forward contract gets more expensive
c. the international Fisher Effect doesn't hold
d. the foreign government expropriates the assets without compensation