QUESTION 19

1. To measure a firms economic performance and position in a given period, it makes sense to measure all of the following except:

   	a.	The daily free cash flow published by the Wall Street Journal
   	b.	A portion of the long-lived resources consumed during that period
   	c.	Expenses incurred for resources consumed in that period
   	d.	The cost of commitments made during that period to pay retirement benefits to employees in future periods

6 points

QUESTION 20

1. Over the life of a firm, the capital invested in the firm by the shareholders plus the income of the firm will reflect:

   	a.	the free cash flows available to shareholders.
   	b.	the value of the firm to shareholders.
   	c.	the dividend paying ability of the firm.
   	d.	the value of the firm for debtholders and shareholders.

6 points

QUESTION 21

1. Assume that a firms book value at the beginning of the year is $17,800 and that the firm reports net income of $6,200. If the firms book value at the end of the year is $20,000 what was the amount of dividends paid during the year?

   	a.	Insufficient information to determine
   	b.	$2,200
   	c.	$8,800
   	d.	$4,000

6 points

QUESTION 22

1. The market price of a share of common equity reflects:

   	a.	the present value of future residual income.
   	b.	book value plus the present value of future residual income.
   	c.	the aggregated expectations of all of the market participants following that particular stock.
   	d.	the correct value for the particular stock.

6 points

QUESTION 23

1. Which of the following would not be an example of the use of a multiple when valuing common equity?

   	a.	Price-to-book.
   	b.	Price-to-operating cash flow
   	c.	Multi-period discounted earnings models.
   	d.	Price-to-earnings.

6 points

QUESTION 24

1. Firms with low P/E ratios tend to have current residual income that is greater than:

   	a.	future residual income.
   	b.	future actual income.
   	c.	past residual income.
   	d.	past actual income.

6 points

QUESTION 25

1. Assuming that Ska Companys cost of equity capital is 14% and it expects to grow earnings at a rate of 8% per year, we would expect Skas P/E ratio to be:

   	a.	14
   	b.	8
   	c.	16.7
   	d.	4.5