FINA 3315 | CHAPTER 8

A company's growth rate is a function of its return on equity and dividend payout ratios.

• True

• False

A stock's value depends on future cash flows.

• True

• False

The single most important issue in the stock valuation process is a company's

• past earnings record.

• historic dividend growth rate.

• expected future returns.

• capital structure.

Which of the following will affect the firm's future cash flows?
I. state of the economy
II. state of the industry
III. the firm's recent and current earnings
IV. new products in the firm's pipeline

• I, II and III only

• I, II and IV only

• I, III and IV only

• I, II, III and IV

To calculate earnings per share (EPS) you must know

• return on assets and total asset value.

• gross revenue and the stock price.

• growth and the number of shares outstanding.

• net income and the number of shares outstanding.

Which one of the following is most likely to increase the price of a stock?

• rapid growth in sales

• rapid decrease in the company's debt levels

• rapid growth in earnings

• rapid increases in bond interest rates

Washington Enterprises had net income of $1,000,000, invested $150,000 in fixed assets, paid $50,000 in dividends, and took depreciation expense of $80,000. Free cash flow was

• $770,000.

• $880,000.

• $930,000.

• $720,000.

In an efficient market, differences between intrinsic value and market value should be small.

• True

• False

The required rate of return denotes the minimum rate of return an investor should expect.

• True

• False

The intrinsic value of an asset equals the present value of all future cash flows at a given discount rate.

• True

• False