Equity Valuation: Concepts and Basic Tools

An equity security is considered undervalued when:

Which of the following conditions is necessary for an investor to profit from buying an undervalued security?

Which category of valuation models estimates value as the present value of cash distributed to shareholders?

The payment of a stock dividend results in which of the following for a shareholder?

Regarding dividend chronology, which date is the first day a buyer of the stock will NOT receive the upcoming dividend?

A company declares a dividend. The holder of record date is set as Friday, March 16. The ex-dividend date is likely:

In a one-year holding period Dividend Discount Model (DDM), the value of the stock today is calculated as:

The Free Cash Flow to Equity (FCFE) model differs from the DDM in that it uses:

Which of the following is a key assumption of the Gordon Growth Model (GGM)?

In the Gordon Growth Model, if the required rate of return (Ke) is less than the dividend growth rate (g):

Preferred stock which pays a fixed dividend forever is typically valued using:

Calculate the value of a preferred stock that pays an annual dividend of 5.00 currency units and has a required rate of return of 8 percent.

Using the Gordon Growth Model, calculate the value of a stock with an expected dividend next year (D1) of 2.00, a required return of 10 percent, and a growth rate of 5 percent.

If a company retains more earnings to invest in high-growth projects, what is the 'dividend displacement of earnings' effect?

Which valuation model is most appropriate for a company experiencing a temporary high-growth phase followed by a stable growth phase?

A 'Trailing P/E' multiple is calculated using:

The 'Justified Leading P/E' can be derived from the Gordon Growth Model as:

Enterprise Value (EV) is defined as:

Which multiple is most commonly used with Enterprise Value?

An asset-based valuation model estimates the value of equity as:

Which of the following is a disadvantage of Asset-Based Valuation models?

A share repurchase is financially equivalent to a cash dividend if:

In the context of the Gordon Growth Model, the variable 'g' represents:

If a company has a Return on Equity (ROE) of 15 percent and a dividend payout ratio of 40 percent, its sustainable growth rate (g) is:

A 'reverse stock split' will result in:

The Price-to-Sales (P/S) ratio is often useful when:

Calculate the Enterprise Value (EV) given: Equity Market Cap = 1000, Debt = 400, Cash = 100.

Which of the following is an advantage of Multiplier Models?

The two-stage DDM is best suited for a company that:

When using the Price-to-Book (P/B) ratio, 'Book Value' refers to:

Calculate the stock value using GGM: D0 = 1.00, g = 5 percent, Required Return = 10 percent.

If a company repurchases shares, what is the likely immediate effect on Earnings Per Share (EPS), assuming net income stays constant?

Why might an analyst use P/CF (Price to Cash Flow) instead of P/E?

A 'Special Dividend' is best described as:

If a stock's market price is 50 and its leading P/E is 10, what are the expected earnings per share (E1)?

The 'Dividend Displacement of Earnings' suggests that:

Which date determines the specific shareholders who are entitled to receive a declared dividend?

What happens to the price of a stock on the ex-dividend date, all else equal?

In a 3-stage DDM, the third stage usually represents:

Which of the following is a limitation of the Price-to-Earnings (P/E) ratio?

A key advantage of using Enterprise Value multiples over Price multiples is:

In the context of asset-based valuation, 'intangible assets' like brand reputation are:

Which term describes a stock dividend that is paid out of shares the company holds in its treasury?

If the risk-free rate increases, assuming all else constant, the value of a stock in the Gordon Growth Model will:

The 'Law of One Price' is the economic principle underlying which valuation method?

For a company with no current dividends but expected future dividends, which model is most appropriate?

Which of the following describes 'Alpha' in the context of equity valuation?

A 'Control Premium' might be relevant when:

If a company's P/E ratio is 15 and the industry average is 20, the company is potentially:

What is the primary determinant of intrinsic value in the Dividend Discount Model?