TF The price/earnings (P/E) ratio tells us how much investors are willing to pay

for a dollar of current earnings. In general, investors regard companies with

higher P/E ratios as being less risky and/or more likely to enjoy higher growth in
the future. TRUE
TF The value of company�s P/E ratio is above the industry average is said to be
undervalued. FALSE
TF If Firms X and Y have the same P/E ratios, then their market-to-book ratios
must also be equal. TRUE
TF If Firm X's P/E ratio exceeds that of Firm Y, then Y is likely to be less
risky and/or be expected to grow at a faster rate. FALSE
TF If Firms X and Y have the same net income, number of shares outstanding, and
price per share, then their market-to-book ratios must also be the same. FALSE
TF The price/earnings (P/E) ratio tells us how much investors are willing to pay
for a dollar of current earnings. In general, investors regard companies with
higher P/E ratios as being more risky and/or less likely to enjoy higher future
growth. FALSE
TF Projected free cash flow to the firm should be discounted at the firm's cost
of equity to find the firm's total corporate value. FALSE
TF Assume that the required return on a given stock is 13%. If the stock's
dividend is growing at a constant rate of 5%, its expected dividend yield is 5% as
well. FALSE
TF It is appropriate to use the constant growth model to estimate a stock's
value even if its growth rate is never expected to become constant. FALSE
TF The corporate valuation model can be used both for companies that pay
dividends and those that do not pay dividends. TRUE
TF Dividend payout ratio is a good basis of valuation for startup companies.
FALSE
TF Price/sales ratios can never be less than zero. TRUE
TF A firm with a high expected growth rate will sell for a higher price/sales
ratio than a firm with a lower expected growth rate. FALSE
TF If profit margins come down, price/sales ratios will also decline. FALSE
TF A lower P/E ratio of a company compared to its rivals is enough basis to
conclude that it�s time to buy. FALSE
TF A stock that sells for less than book value is undervalued.FALSE
TF Having low payout ratio will likely be priced lower in the market. FALSE
TF A combination of a low price/book value ratio and a high expected return on
equity suggests that a stock is undervalued. TRUE
TF If profit margins come down, price/sales ratios will also decline. FALSE
TF Distressed company (e.g., a company at the brink of bankruptcy) is not valued
anymore since it�s not likely that anybody would be interested in buying its
shares. FALSE
MC Firm X reported an earnings per share of P8.00 in 2021 and consistently paid
dividends of P2.50 per share yearly. If market return is 5% and earnings is
expected to grow 1% year, what is the P/E Ratio of Firm X? 20 INCORRECT 125
INCORRECT 10.42 INCORRECT 7.81 CORRECT
MC If free cash flow of the firm is at P10M with interest expense to the firm at
P500k, net increase in borrowings of P600k, what is the free cash flow to equity
assuming applicable tax rate is 25%? P10M INCORRECT P9.5M INCORRECT P10.6M
INCORRECT P10.225M CORRECT
MC If Firm X�s sales is P1M, profit margin of 5% with a total of 10,000 shares
outstanding. What is its P/E ratio if the stock is selling at P50? P5
INCORRECT P50 INCORRECT P20 INCORRECT P10 CORRECT
MC Firm X�s current stock price is P5 while book value is at P3.5 per share. If
total outstanding shares is 1,000,000 of which 40% is in the stock market, what is
the total market capitalization of Firm X? P5,000,000 INCORRECT P3,500,000
INCORRECT P2,000,000 CORRECT P1,400,000 INCORRECT
MC Firm X relevant financial data are as follows: Sales - P500,000, Profit from
operation � P50,000, Interest expenses � P10,000, Taxes � P20,000, Stockholders�
Equity � P125,000, Total Liabilities � P275,000. What is the debt to assets ratio?
(choose the closest) 50% INCORRECT 65% INCORRECT 69% CORRECT 200%
INCORRECT
MC Firm X reported an earnings per share of P5.00 in 2021 and consistently paid
dividends of P2.00 per share yearly. If market return is 5%, what is the payout
ratio of Firm X? 2.5 INCORRECT 0.2 INCORRECT 0.4 CORRECT 0.5
INCORRECT
MC If Firm X�s BV/share is P20, P/E ratio is 30, sales of P3M, net income of
250k, and total outstanding share is 250,000 shares, what is the market to book
ratio? 2 INCORRECT 3 INCORRECT 1.5 CORRECT 1 INCORRECT
MC Using the following data: P/E ratio � 5, Sales � P1M, Profit margin � 5%,
shares outstanding � 100,000 shares. What is the price-sales ratio? 0.5
INCORRECT 0.1 INCORRECT 0.25 CORRECT 0.3 INCORRECT
MC Firm X reported an earnings per share of P5.00 in 2021 and consistently paid
dividends of P2.00 per share yearly. If market return is 5%, what is the P/E
Ratio of Firm X? 20 INCORRECT 8 CORRECT 2.5 INCORRECT 0.4
INCORRECT
MC Firm X expects EPS for the year to be at P2.50. If P/E Ratio is 10 for
companies in Firm X�s industry, what is the estimated price of Firm X�s stocks?
4 INCORRECT 25 CORRECT 0.25 INCORRECT 2.5 INCORRECT
MC If estimated ROE at year-end is 20% and dividend payout is 25%, what is the
estimated growth rate? 10% INCORRECT 15% CORRECT 5% INCORRECT 50%
INCORRECT
MC If Firm X�s share is currently selling at P80, EPS at P4, ROE of 15%, and
Dividend Payout Ratio of 50%, what is Firm X�s Price-Earnings Growth (PEG) ratio?
125 INCORRECT 267 CORRECT 100 INCORRECT 80 INCORRECT
MC Given the following data: EBIT = P4,000, applicable tax rate � 25%,
depreciation is P500, capital expenditures of P800, net increase in working capital
of P300, what is the free cash flow to the firm? 2,000 INCORRECT 2,400
CORRECT 3,000 INCORRECT 2,900 INCORRECT
MC How much must be invested today at 0% to have P100 in three years? P77.75
INCORRECT P100.00 CORRECT P126.30 INCORRECT P87.50
INCORRECT
MC Firm X�s earnings per share is P4 with growth rate of 5%. Total outstanding
shares of stock is 100,000. What is the PEG ratio of Firm X if its shares are
trading at P20? 100 INCORRECT 1 CORRECT 2 INCORRECT 200
INCORRECT
MC If market value of a firm�s assets and liabilities are P1M and P250k,
respectively, and book value per share of P10 at 100k shares outstanding, what is
the market to book ratio? 1 INCORRECT 0.75 CORRECT 2 INCORRECT
1.5 INCORRECT
MC The firm�s D0 = P2.0, g = 6.0%, and P0= P30.00, what is the stock�s expected
total return for the coming year? 13.07 CORRECT 10.35 INCORRECT 7.07
INCORRECT 25.25 INCORRECT
MC Compute for the number of shares of stocks outstanding if a company has a net
income of P1M, P/E ratio of 20, and EPS of P4. 250k CORRECT 12.5k INCORRECT
500k INCORRECT 150k INCORRECT
MC Firm X�s profit margin is 30%. ROA is 8%. What is the ROE if equity
multiplier is 2? 16% CORRECT 0.17 INCORRECT 0.18 INCORRECT 0.19
INCORRECT
MC Firm X�s Price-Sales ratio is 2 and annual sales of P2M with a 10% profit
margin. At 100,000 shares outstanding, what is Firm X�s P/E ratio? 20
CORRECT 25 INCORRECT 30 INCORRECT 35 INCORRECT