21. Which of the following statements is not true?

1. Positive earnings is a necessary but not a sufficient condition to yield positive residual earnings;
2. If ROCE > r, residual earnings will be positive.
3. If residual earnings grow, abnormal earnings growth (AEG) will be positive
4. A positive AEG means Price-to-Book (P/B) ratio > 1.

22. Which of the following statements is not true?

1. AEG = Cum-Dividend Earnings Normal Earnings
2. The AEG model prices earnings.
3. If earnings grow at a certain rate, the AEG will also grow at the same rate.
4. Cum-Dividend earnings = Earnings + Earnings from reinvested dividends.

23. Which of the following statements is not true?

1. If P/B is >1, residual earnings must be positive.
2. If Value/Price is 1, the firms stock is overvalued
3. If RE is positive, free cash flow must also be positive
4. If RE remains unchanged, AEG will be zero. AEG = Change in RE

24. Fill in the blank:

Valuation models can be used naively, yielding valuations that that are just the product of _ _ _ _ _ _ _ inputs.

A. speculative B. reliable

C. audited D. useful

25. Expected rate of return (ER) can be reverse engineered using the following formula:

1. ER = [B₀/P₀ x ROCE1] + [(1 B₀/P₀) x g]
2. ER = [P₀/B₀ x ROCE1] + [(1 B₀/P₀) x g]
3. ER = [V₀/P₀x ROCE1] + [(1 B₀/P₀) x g]
4. ER = [B₀/P₀ x ROCE1] + [(1 + B₀/P₀) x g]