MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question.

25) An aggressive growth mutual fund is least likely to purchase a stock 25) ______

A) with a high anticipated rate of growth. B) of an unseasoned firm.

C) with a high dividend yield. D) with a high P/E ratio.

26) The single most important issue in the stock valuation process is a company's 26) ______

A) expected future returns. B) capital structure.

C) past earnings record. D) historic dividend growth rate.

27) Which of the following contributes to high P/E ratios? 27) ______

A) high debt ratios B) high rate of earnings growth

C) periods of high inflation D) high dividend payout ratios

28) The Merry Co. has current annual sales of $350,000 and a net profit margin of 6%. Sales are

expected to increase by 5% annually while the profit margin is expected to remain constant. What

is the projected after-tax earnings for two years from now?

28) ______

A) $23,153 B) $19,294 C) $23,100 D) $22,050

29) If the market multiple is 23.0 and the P/E ratio of a company is 27.4, then the stock's relative P/E is 29) ______

A) 4.40. B) 3.21. C) 1.19. D) 0.84.

30) P/E ratios could rise even as earnings fall if 30) ______

A) investors expect lower stock prices to be permanent.

B) investors expect lower earnings to be permanent.

C) earnings fall at a faster rate than stock prices.

D) earnings fall at a slower rate than stock prices.

31) Which one of the following is a correct equation to calculate earnings per share? 31) ______

A) (profit margin)(equity multiplier)(book value per share)

B) (profit margin)(total asset turnover)(equity multiplier)(book value per share)

C) (profit margin)(book value per share)

D) (ROA)(book value per share)

32) Global Warning's EPS for the current year is $2.75 and its current P/E ratio is 50. You have

forecasted that EPS will grow by 10% but the P/E ratio will fall to 40. What do you expect the

price of a share of GW's stock to be at the end of next year?

32) ______

A) $121 B) $137.50 C) $110 D) $151.25

33) Markhem Enterprises is expected to earn $1.34 per share this year. The company has a dividend

payout ratio of 40% and a P/E ratio of 18. What should one share of common stock in Markhem Enterprises be selling for in the market?33) ______

A) $33.77 B) $9.65 C) $24.12 D) $14.47

34) The intrinsic value of a stock provides a purchase price for the stock 34) ______

A) which will assuredly yield the anticipated capital gain.

B) which will guarantee the expected rate of return.

C) that is always below the market value but yet yields the expected rate of return.

D) that is reasonable given the associated level of risk.

35) The risk-free rate of return is 2.2 percent, the expected market return is 11 percent, and the beta for Solstice, Inc. is 1.12. What is Solstice's required rate of return?

35) ______

A) 13.20% B) 14.30% C) 8.80% D) 12.05%