3/29/2024


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Total Questions 30
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Course # 571004
Valuation: Businesses, Securities and Real Estate
based on the electronic .pdf file(s):

Valuation:Businesses, Securities, and Real Estate
by: Dr. Jae K. Shim, Ph.D., 2014, 48 pages


5 CPE Credit Hours
Finance

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Chapter 1 - Corporate Valuations

1.    There are many reasons for determining the value of a company. The reasons for a valuation do NOT include:   
The purchase or sale of the business.
External financial reporting.
Mergers and acquisitions.
Buy-back agreements.
2.    Tough economic times and economies of scale encourage all the following EXCEPT   
Increased litigation involving partner disputes.
Rapid expansion during a recession economy.
Lawsuits involving dissenting shareholder actions.
Mergers and acquisitions.
3.    The estimated rate of capitalization (cost of capital) includes   
Analyzing financial health.
Checking overall forecast for reasonableness.
Developing target market value weights.
Selecting proper valuation method.
4.    For the dissolution of the business, the company's value might be based on the ___________________ of the company's assets.   
Replacement value.
Liquidated value.
Fair market value.
Duplication value.
5.    Business valuation methods do NOT include   
Price-Earnings (P-E) ratios.
Adjusted net book value.
Replacement cost.
Capitalization of earnings.
6.    The discount rate ordinarily used in present value calculations is the   
Federal Reserve rate.
Treasury bill rate.
Minimum required rate of return set by the firm.
Prime rate.
7.    The present value of $110,000 expected to be received one year from today at an interest rate (discount rate) of 10% per year is: (Note: the present value of $1 at 10% for one period is 0.909).   
$121,000.00
$99,990.00
$110,000.00
$909,000.00
8.    A business is worth the discounted value of future cash earnings plus the discounted value of the expected selling price. Which of the following used this concept?   
Capitalization of earnings method.
Excess earnings return on assets method.
Discount cash flow method.
Adjusted net assets method.
9.    "Earnings surprises” are defined as   
A business ownership interest that can be sold quickly will be worth more than a similar interest that cannot be sold quickly.
A business valuation that does not have to be restricted to the valuation of an entire company.
Estimates that can (usually do) prove to be off target; when this occurs, for example, a positive earnings results exceeding market expectations.
For publicly traded stocks, stock trading prices that are often directly proportional to earnings.
10.    __________________ is NOT an approach to determining the fundamental value for a security investment.   
Charting.
Capitalization of earnings.
Dividend payout.
P/E ratio.


Chapter 2 - Security and Real Estate Valuation

11.    The valuation process for a bond does NOT require knowledge of   
Amount of cash flows to be received by investor.
A Bond's yield curve.
Maturity date of the loan.
Investor's required rate of return.
12.    Which of the following is directly applied in determining the value of a stock when using the Gordon’s valuation model?   
The firm's capital structure.
The firm's cash flows.
The growth rate in earnings.
The firm's liquidity.
13.    Consider a common stock that paid a $3 dividend per share at the end of the last year and is expected to pay a cash dividend every year at a growth rate of 10 percent. Assume the investor's required rate of return is 12 percent. The value of the stock would be   
$330.00
$165.00
$150.00
$3.30.
14.    A beta of “0” means   
The security is twice as volatile or risky as the market.
The security is half as volatile as the market.
The security is independent of the market (risk-free).
The security is as volatile or risky as the market.
15.    Price-earnings ratio is NOT affected by   
Growth rate of earnings.
Size of the firm.
Cash flow from operations.
Expected dividends.
16.    The capitalization of earnings method is based on the _______________ assumption.   
Zero growth case.
Constant growth case.
Exponential growth case.
Modified constant growth case.
17.    A measure of a security's volatility relative to an average security is   
Coefficient of variation.
Standard deviation.
Beta.
Expected return.
18.    Forecasted price at the end of year is   
Estimated EPS in year t x estimated P/E ratio
Estimated EPS in year t x estimated P/S ratio
Estimated EPS in year t x estimated P/D ratio
Estimated EPS in year t x estimated P/ ratio
19.    Assume that required rate of return stay the same but that the future dividends are expected to grow over the long run. As a result of the growth in dividends, the company’s stock price should   
Increase.
Decrease.
Stay constant.
Change, but in no obvious direction.
20.    The market value of a firm’s outstanding common shares will be higher if   
Investors have a lower required return on equity.
Investors expect lower dividend growth.
Investors have longer expected holding periods.
Investors have shorter expected holding periods.
21.    By using the dividend growth model, estimate the value of the stock for a firm with a required rate of 20%, an estimated dividend at the end of the first year of $3.00 per share, and an expected growth rate of 10%.   
$20.00
$15.00
$30.00
Cannot be determined.
22.    The difference between the required rate of return on a given risky investment and that on a riskless investment with the same expected return is the   
Coefficient of variation.
Market risk premium.
Standard deviation.
Beta coefficient.
23.    ______________________ is NOT considered a pragmatic approach to common stock valuation.   
P/E ratios.
Discounted cash flow analysis.
Price-sales (P/S) ratios.
Price-dividend ratios.
24.    The market portfolio, such as Standard & Poor’s 500, has a beta of ____.   
0
0.5
1
2
25.    The ___________________________ method uses the present value technique under which the asking price or value of a real estate investment is the present worth of the future after-tax cash flows from the investment, discounted at the rate of return required by the investor.   
Gross Income Multiplier.
Discounted cash flow.
Capitalization rate
Minimum rate of return.
26.    _________________ is NOT a rule-of-thumb method to arrive at the estimated value of an income producing property.   
Gross income multiplier.
Dividend growth.
Net income multiplier.
Capitalization rate.
27.    Certain terms used in real estate investments have applications similar to those used in security analysis. For example, the price earnings (P/E) ratio found in the analysis of stocks is equivalent to _____________ in real estate investment analysis.   
Earnings on sales price.
Net income multiplier.
Discounted cash flow.
Cost recovery.
28.    Which of the following is equal to before-tax cash flow from operations?   
Net operating income - Debt service.
Gross operating income - Debt service.
Gross operating income - Operating expense.
Net operating income - Income tax.
29.    Calculate the capitalization rate for the following investment: Net operating income (NOI) = $18,750; Purchase price = $150,000; Equity = 20%   
10%.
14%.
12.5%.
15%.
30.    The capitalization rate is   
Purchase price/net operating income.
Net operating income/purchase price
Purchase price/gross rental income..
Risk-free rate.

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