finance quiz

All of the following are steps in the analysis and valuation framework used to understand the fundamentals of a business and determine estimates of its valueexcept:

Clean surplus accounting for most common stock transactions holds for shares accounted for at market value. An exception to this is:

Which of the following is not a problem with using a dividend-based valuation formula

Which of the following would likely be the most useful when valuing a dot.com company?

In theory, all three valuation models, when correctly implemented with internally consistent assumptions, will produce the same estimates of value.  However, in practice, which of the following errors can result in different value estimates? 

At the beginning of 2012 investors had invested $25,000 of common equity in Grant Corp.and expect to earn a return of 11% per year. In addition, investors expect Grant Corp. to pay out 100% of income in dividends each year. Forecasts of Grant’s net income are as follows:             2012 - $3,500             2013 - $3,200             2014 - $2,900             2015 and beyond - $2,750 Using this information what is Grant’s residual income valuation at the beginning of 2012?

In some industries, competitive dynamics eventually drive long-run projections of the future returns earned by the firm to an equilibrium level equal to the long-run expected cost of equity capital in the firm. At that point, a firm can be expected to earn ____________ residual income in the future.

Early in a period in which sales were increasing at a modest rate and plan expansion and start-up costs were occurring at a rapid rate, a successful business would likely experience

If an analyst expects a firm to generate net income each period exactly equal to required earnings, then the value of the firm will be

Zonk Corp. The following data pertains to Zonk Corp., a manufacturer of ball bearings (dollar amounts in millions):

Using the above information, calculate Zonk’s weighted-average cost of capital:

Residual income is

Jarrett Corp. At the end of 2010 Jarrett Corp. developed the following forecasts of net income:

Management believes that after 2015 Jarrett will grow at a rate of 7% each year. Total common shareholders' was $112,768 on December 31, 2010. Jarrett hasnot established a dividend and does not plan to paying dividends during 2011 to 2015. Its cost of equity capital is 12%. What would be Jarrett’s common shareholders' equity at the end of 2014?

At the beginning of 2012 investors had invested $125,000 of common equity in Jan Corp.and expect to earn a return of 15% per year. In addition, investors expect Jan Corp. to pay out 100% of income in dividends each year. Forecasts of Jan’s net income are as follows:             2012 - $41,000             2013 - $35,400             2014 - $33,200             2015 and beyond - $25,000 Using this information what is Jan’s residual income valuation at the beginning of 2012?

Equity valuation models based on dividends, cash flows, and earnings have been the topic of many theoretical and empirical research studies in recent years. All of the following are true regarding these studies except:

Zonk Corp. The following data pertains to Zonk Corp., a manufacturer of ball bearings (dollar amounts in millions):

Determine the weight on debt capital that should be used to calculate Zonk’s weighted-average cost of capital:

Assume that a firm’s book value at the beginning of the year is $17,800 and that the firm reports net income of $6,200. If the firm’s book value at the end of the year is $20,000 what was the amount of dividends paid during the year?

Dirty surplus items in U.S. GAAP typically arise from all of the following except:

Firm-specific factors that increase the firm’s nondiversifiable risk include all of the following except:

Assume that a firm had shareholders' equity on the balance sheet at a book value of $1,600 at the end of 2010. During 2011 the firm earns net income of $1,300, pays dividends to shareholders of $600, and uses $300 to repurchase common shares. The book value of shareholders equity at the end of 2011 is:

Under the cash-flow-based valuation approach, free cash flows can be used instead of dividends as the expected future payoffs to the investor in the numerator of the general valuation model because:

Jarrett Corp. At the end of 2010 Jarrett Corp. developed the following forecasts of net income:

Management believes that after 2015 Jarrett will grow at a rate of 7% each year. Total common shareholders' was $112,768 on December 31, 2010. Jarrett hasnot established a dividend and does not plan to paying dividends during 2011 to 2015. Its cost of equity capital is 12%. Compute the value of Jarrett Corp. on January 1, 2011, using the residual income valuation model. Use the half-year adjustment.

One rationale for using expected dividends in valuation is

Zonk Corp. The following data pertains to Zonk Corp., a manufacturer of ball bearings (dollar amounts in millions):

Assuming that riskless rate is 4.2% and the market premium is 6.2% calculate Zonk’s cost of equity capital:

Required earnings are the

Jarrett Corp. At the end of 2010 Jarrett Corp. developed the following forecasts of net income:

Management believes that after 2015 Jarrett will grow at a rate of 7% each year. Total common shareholders' was $112,768 on December 31, 2010. Jarrett hasnot established a dividend and does not plan to paying dividends during 2011 to 2015. Its cost of equity capital is 12%. What would be Jarrett’s residual income in 2013?