Q. 7 Your internet service company has been approached by investment bankers who suggest you take your company public. W

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Q. 7 Your internet service company has been approached by
investment bankers who suggest you take your company public. Where
would the initial IPO price for your company be set?
Select an answer:
at your industry's P/E ratio times your prior year's
earnings
at the price other companies in your industry used for their
IPOs
at your estimate of your company's growth potential times your
prior year's earnings
at your industry's P/E ratio divided by your prior year's
earnings
Q.8 Why are high-tech industries characterized by high P/E
(price/earnings) ratios?
Select an answer:
P/E ratios are based on anticipated future risks.
P/E ratios are based on a company's longevity.
P/E ratios are based on expected future earnings growth.
P/E ratios are based on the stability of a company's
products.
Q.9 How did McDonalds, under new owner Ray Kroc, establish
itself in the 1950s as the leader in the fast-food industry?
Select an answer:
by relying on the recipes it purchased when it opened
by having products with consistent quality
by providing an expansive menu
by continually introducing new products
Q.10 Why do most companies have a price-to-book ratio greater
than one?
Select an answer:
Intangible assets, such as reputation, are stated on a company's
balance sheet as having a zero value.
A company's past return-on-equity has been lower than average
for similar companies.
Most assets are on the "books" at their old historic costs, and
not at their current values.
Q.11
You want to buy some stock, and you are going to base your
investment on the price-to-sales ratio. Whose stock would you
buy?
Select an answer:
a chain supermarket that has been operating nationally for 60
years
an online sales company whose price-to-earnings ratio is higher
than its price-to-sales ratio
a soda distributing company that is in a relatively high-profit
industry
a florist shop that recently opened in your neighborhood with a
manager whom you know is good
Q.12
An investor group is considering purchasing a large national
restaurant chain. What would the investment group use to best value
the price it should pay for the company's shares?
Select an answer:
the expected growth rate in the restaurant industry
the price/earnings ratio of other restaurant chains
the required rate of return from the investment
the price-per-share of other restaurant chains
Q.13
If you use a formula of Price = Forecasted dividend next
year/(r-g), which model are you using and which assumption is
included?
Select an answer:
the Gordon growth model, with the realistic assumption that a
company will base any dividends it pays out on past
profitability
the Gordon growth model, with the realistic assumption that
companies will pay out the same dividend year after year
the Gordon growth model, with an unrealistic assumption that
dividends will grow at the same rate forever
the Gordon growth model, with an unrealistic assumption that the
company will keep its profits as retained earnings
Q.14
Which assumptions are made in appraising the fair value of an
asset, such as shares of stock in a publicly traded company that is
being sold?
Select an answer:
The sale was not forced, and the seller does not have any time
pressure to sell the asset.
The sale was not forced, and the market participants on both
sides are informed.
The sale was not forced, and the market participants on the
buying side are novice investors.
The sale was not forced, and the asset is liquid because of the
market it is traded in.