Question
1) If an analyst estimates a quality of earnings ratio of 0.8, what does this imply about the company? The companys cash flows are likely
1) If an analyst estimates a quality of earnings ratio of 0.8, what does this imply about the company?
The companys cash flows are likely unsustainable in the long run
The company is likely overvalued due to aggressive accounting policies
The company may be aggressive in its revenue recognition policy
2) What aspect of a firm is measured by the Beneish M-score?
Financial reporting quality
Quality of earnings
Bankruptcy risk
3) Which of the following is not a potential measurement error that arises from GAAP?
Uncollectable/doubtful accounts are difficult to estimate
Assets are typically undervalued due to depreciation and amortization rules
Research and development is expensed rather than capitalized
4) When clean surplus accounting is violated, it is often the case that net income is understated but book equity is accurately measured. In that situation, what is the effect on ROE?
ROE will be unaffected
Measured ROE will be lower than it should be
Estimated ROE will be higher than it should be
5) What aspect of a firm is measured by Altmans Z-score?
Financial reporting quality
Bankruptcy risk
Liquidity
6) What are the only two inputs that matter to valuation according to the pure dividend discount model?
Earnings and the cost of equity
WACC and growth
Growth and risk
7) How does the H-model differ from the Gordon dividend discount model?
It is a two-stage model with a sharp decline from high to low growth periods
It measures earnings growth rather than future dividends
It utilizes multi-stage growth with a linear decline over several years
8) Which of the following is not one of Porters Five Forces?
Cost leadership in the industry
Power of suppliers
Threat of substitutes
9) Which of the following is not considered when computing the cash conversion cycle?
Capital intensity ratio
Inventory turnover
Receivables turnover
10) If a firm has forecasted earnings of $1.50, expected growth of 3%, cost of equity of 8%, WACC of 7%, and a P/E ratio of 14, what is your estimate of present value using the relative P/E method? (Note: Not all numbers are necessary for this calculation)
$30.90
$21.00
$38.63
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