Question 1. Question (TCO 2) The primary purpose of fundamental stock valuation is to _____.

eliminate stocks of those companies that are potential losers from the portfolio

identify for purchase those companies that are fundamentally undervalued

learn to identify peaks and troughs of the business cycle

All of the above

Question 2. Question : (TCO 2) Some of the major leading indicators would be _____.

money supply (M2), consumer expectations, and stock prices (S&P 500)

personal income, employees on nonagricultural payrolls, and industrial production

average prime rate charged by banks, labor cost per unit of output, and commercial and industrial loans outstanding

All of the above

Question 3. Question : (TCO 2) In which stage of the industry life cycle are companies likely to be privately owned?

Development

Maturity

Decline

Expansion

Question 4. Question : (TCO 2) The crossover point on the life cycle curve is the point where _____.

the company issues stock in an initial public offering (IPO)

the company gets listed on an organized exchange

the company’s industry moves from the growth stage to the expansion stage

the industry’s products begin to be accepted by the marketplace

Question 5. Question : (TCO 2) Which of the following statements about stock valuation based on asset value is NOT true?

Natural resources often give a company value, even if an income stream is not produced.

The value of the assets may not even appear on the balance sheet.

Current assets are usually excluded from the valuation process, since they will be used up in the next business cycle.

Hidden assets can add substantial value to the firm.

Question 6. Question : (TCO 2) The primary difference between dividend valuation models and earnings valuation models is _____.

selecting the appropriate discount rate

dividends are not considered in earnings models

whether the investor’s income stream or the firm’s income stream is measured

More than one of the above

Question 7. Question : (TCO 2) P/E ratios are influenced by a company’s _____.

growth rate

risk

capital structure

All of the above

Question 8. Question : (TCO 2) The major device for measuring the profitability of a firm over a defined period of time is the _____.

income statement

balance sheet

statement of cash flows

None of the above

Comments:

Question 9. Question : (TCO 2) Asset-utilization ratios measure _____.

: productivity of fixed assets in terms of sales.

the relationship of sales on the income statement to various assets on the balance sheet.

the firm’s ability to pay off short-term obligations as they come due.

All of the above

Question 10. Question : (TCO 2) _____ ratios measure the impact of external market forces on the internal performance of a firm.

Price

Profitability

Liquidity

Asset-utilization

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