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FIN 501 CH 7, 8 2026 LATEST
QUESTIONS AND ANSWERS| ACE
YOUR GRADES.
Equinox Bioengineering began operations in January of 2015. In
its first year of operation, sales were $85 million and the net loss
was $(5.1 million). Free cash flow was $(300,000). Equinox has
10 million shares outstanding. If you think the price to sales ratio
for this company should be 1 or less, what is the most you should
pay per share.
A) $85.00
B) $8.50
C) $51.00
D) Such a stock would have no value at all. - correct answer -B
Early in 2015, Maria bought shares of MBA Inc. at $27.85 per
share. She received the following dividends per share (end of
year).
2015 $1.50
2016 $2.00
2017 $2.50
Immediately after receiving the 2017 dividend, she sold the stock
for $32.50 per share. Her internal rate of return on this investment
was
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A) 9.17%.
B) 10.25%.
C) 11.99%.
D) 13.85%. - correct answer -C
Early in 2015, Mathew is analyzing shares of Janeff Corp. He
expects the following dividends per share (end of year).
2015 $1.00
2016 $1.25
2017 $1.50
He expects 2017 earnings per share to be $4.50 and Janeff's P/E
ratio to be 20. His required rate of return for this stock is 12%. He
should pay no more than
A) $43.75 per share.
B) $67.02 per share.
C) $68.75 per share.
D) $93.75 per share. - correct answer -B
Which of the following approaches to stock valuation is NOT
based on a multiple of some figure from the financial statements?
A) the price-to-cash flow approach
B) the price-to-sales approach
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C) the dividends-growth model
D) the price-to-earnings approach - correct answer -C
The Highlight Company has a book value of $56.50 per share,
and is currently trading at a price of $59.00 per share. You are
interested in investing in Highlight, and have just used a present-
value based stock valuation model to calculate a present
(intrinsic) value of $55.00 per share for Highlight's stock.
Assuming that your calculations are correct you should
A) buy the stock, because the current market price per share is
higher than the present value.
B) buy the stock, because the book value per share is greater
than the present value.
C) not buy the stock, because the present value is less than the
market price per share.
D) buy the stock, because the book value and the current trading
price are very close to one another in value. - correct answer -C
Macoun Co.'s most recent EPS were $3.25 and they are
expected to grow at a rate of 5% for the near future. The stock
currently sells for $48.75. What is the price to forecasted earnings
ratio?
A) 15.00
B) 14.30
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C) 15.75
D) .07 - correct answer -B
The price-to-cash-flow method of stock valuation generally
A) uses either EBITDA or operating cash flow from the cash flow
statement as a measure of cash flow.
B) relies on historical cash flows.
C) produces a cash flow multiple that is greater than the P/E
multiple.
D) applies the P/E multiple to the cash flow per share value. -
correct answer -A
For which one of the following situations will the price-to-sales
valuation model work but the dividend and cash flow models will
not?
A) mature firm with minimal growth opportunities
B) water-powered electric utility company
C) newly-formed biotechnology company with negative earnings
D) top-performing firm in a mature industry - correct answer -C
For which one of the following situations will the dividend-growth
models work especially well?
FIN 501 CH 7, 8 2026 LATEST
QUESTIONS AND ANSWERS| ACE
YOUR GRADES.
Equinox Bioengineering began operations in January of 2015. In
its first year of operation, sales were $85 million and the net loss
was $(5.1 million). Free cash flow was $(300,000). Equinox has
10 million shares outstanding. If you think the price to sales ratio
for this company should be 1 or less, what is the most you should
pay per share.
A) $85.00
B) $8.50
C) $51.00
D) Such a stock would have no value at all. - correct answer -B
Early in 2015, Maria bought shares of MBA Inc. at $27.85 per
share. She received the following dividends per share (end of
year).
2015 $1.50
2016 $2.00
2017 $2.50
Immediately after receiving the 2017 dividend, she sold the stock
for $32.50 per share. Her internal rate of return on this investment
was
, Page | 2
A) 9.17%.
B) 10.25%.
C) 11.99%.
D) 13.85%. - correct answer -C
Early in 2015, Mathew is analyzing shares of Janeff Corp. He
expects the following dividends per share (end of year).
2015 $1.00
2016 $1.25
2017 $1.50
He expects 2017 earnings per share to be $4.50 and Janeff's P/E
ratio to be 20. His required rate of return for this stock is 12%. He
should pay no more than
A) $43.75 per share.
B) $67.02 per share.
C) $68.75 per share.
D) $93.75 per share. - correct answer -B
Which of the following approaches to stock valuation is NOT
based on a multiple of some figure from the financial statements?
A) the price-to-cash flow approach
B) the price-to-sales approach
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C) the dividends-growth model
D) the price-to-earnings approach - correct answer -C
The Highlight Company has a book value of $56.50 per share,
and is currently trading at a price of $59.00 per share. You are
interested in investing in Highlight, and have just used a present-
value based stock valuation model to calculate a present
(intrinsic) value of $55.00 per share for Highlight's stock.
Assuming that your calculations are correct you should
A) buy the stock, because the current market price per share is
higher than the present value.
B) buy the stock, because the book value per share is greater
than the present value.
C) not buy the stock, because the present value is less than the
market price per share.
D) buy the stock, because the book value and the current trading
price are very close to one another in value. - correct answer -C
Macoun Co.'s most recent EPS were $3.25 and they are
expected to grow at a rate of 5% for the near future. The stock
currently sells for $48.75. What is the price to forecasted earnings
ratio?
A) 15.00
B) 14.30
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C) 15.75
D) .07 - correct answer -B
The price-to-cash-flow method of stock valuation generally
A) uses either EBITDA or operating cash flow from the cash flow
statement as a measure of cash flow.
B) relies on historical cash flows.
C) produces a cash flow multiple that is greater than the P/E
multiple.
D) applies the P/E multiple to the cash flow per share value. -
correct answer -A
For which one of the following situations will the price-to-sales
valuation model work but the dividend and cash flow models will
not?
A) mature firm with minimal growth opportunities
B) water-powered electric utility company
C) newly-formed biotechnology company with negative earnings
D) top-performing firm in a mature industry - correct answer -C
For which one of the following situations will the dividend-growth
models work especially well?
