Estimated Value and Market Price Assessment Test Questions With 100% Verified Answers.
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Module
PBV
Institution
PBV
Intrinsic value: high confidence in your model means? - correct answer high confidence means the market price will converge to the intrinsic value over time
Intrinsic value: number of analysts - correct answer the more ana...
Intrinsic value: high confidence in your model means? - correct answer high
confidence means the market price will converge to the intrinsic value over time
Intrinsic value: number of analysts - correct answer the more analysts the less the
misspricing
Present value models - correct answer · estimate value as present value of expected
future benefits
· future benefits are cash distributed to shareholders (dividend discount model), or cash available to
shareholders after meeting the necessary capital expenditure and working capital expenses
Multiplier models - correct answer · estimate intrinsic value based on a multiple of
some fundamental variable
· either stock price/ earnings, or sales, book value, cash flow
Asset-based valuation models - correct answer · estimate the value of equity as the
value of assets less the value of liabilities
· book values of assets and liabilities are typically adjusted to their fair values when using these models
Three types of cash dividends - correct answer · regular cash dividends- are paid out
on a constant basis. a stable or increasing dividend is viewed as a sign of financial stability
· special dividends- are one time cash payments when the situation is favorable
· liquidating dividend- distributed to shareholders when a company goes out of business
Stock dividend - correct answer · Company distributes additional shares instead of
cash
· since the market value of equity is unaffected, stock dividends aren't relevant for valuation purposes
, Share Repurchase - correct answer a transaction in which a firm uses cash to buy
back its own stock
· companies choose to engage in share repurchase instead of cash dividends to support share prices, to
have flexibility in the amount and timing of cash distribution, when tax rates on capital gains are lower
than tax rates on dividends, and to offset the impact of employee stock options
dividend payment chronology - correct answer · the dividend payment schedule is
as follows
· declaration date -> ex dividend date (cut-off date on or after which buyers of a stock aren't eligible for
the dividend) -> Holder of record date (record of shareholders who are eligible to receive the dividend is
made) -> payment date
Dividend Discount Model - correct answer Discounted cash-flow model which states
that today's stock price equals the present value of all expected future dividends
· according to DDM, the intrinsic value of a stock is the present value of future dividends plus the
present value of terminal value
Free Cash Flow to Equity - correct answer Cash flow that would be available for
distribution to common shareholders;
= Cash Flow from Operations - Fixed Capital Investment + Debt Issued - Debt Repaid
preferred stock valuation - correct answer · For a non callable, nonconvertible
perpetual preferred share paying a level dividend and assuming a constant required rate of return, the
value is given by the equation V= D/r
· where V equals present value of the perpetuity; D equals dividend; R equals rate of return
Gordon Growth Model - correct answer · One disadvantage of the DDM is that it's
difficult to accurately estimate the amount of dividends for a long period of time
· the Gordon growth model simplifies this by assuming that dividends grow indefinitely at a constant
rate
·v=D/R-G
· Assumptions of the Gordon growth model - correct answer · dividends are the
correct metric to use for valuation purposes
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