Reading 61: Introduction to Price Multiples - LOS b ～ Q6-

答案和详解如下：

6.The current price of XYZ, Inc., is $40 per share with 1,000 shares of equity outstanding. Sales are $4,000 and the book value of the firm is $10,000. What is the price/sales ratio of XYZ, Inc.?

A)   4.000.

B)   0.010.

C)   0.004.

D)   10.000.

The correct answer was D)

The price/sales ratio is (price per share)/(sales per share) = (40)/(4,000/1,000) = 10.0. Alternatively, the price/sales ratio may be thought of as the market value of the company divided by its sales, or (40 * 1,000)/4,000, or 10.0 again.

7.The price to book value ratio (P/BV) is a helpful valuation technique when examining firms:

A)   with the same stock prices.

B)   with different production methods.

C)   that hold primarily liquid assets.

D)   with older assets compared to those with newer assets.

The correct answer was C)

P/BV analysis works best for firms that hold primarily liquid assets.

8.An increase in a firm’s stock price will, all else equal, cause the price to cash flow (P/CF) ratio to:

A)   decrease.

B)   remain the same.

C)   increase.

D)   there is insufficient information to tell.

The correct answer was C)

An increase in a firm’s stock price will, everything else being equal (i.e., the CF does not change), cause the P/CF ratio to increase.

9.Which of the following statements regarding the value of the firm is most accurate?

A)   A company's legal and treasury departments act to reduce the tax rate from 37.5% to 37.0%, the value of the firm will increase.

B)   The government engages in a restrictive monetary policy and the expected inflation rate decreases, the P/E ratio will decrease.

C)   The market requires a lower rate of return, the value of the firm will decrease.

D)   The board of directors increases the dividend payout ratio, the value of the company will increase.

The correct answer was A)

A decrease in the tax rate would increase the company’s EPS and thus would increase the value of the firm. (The equation for EPS includes the term (1-t).)

The other statements are incorrect.

Increase in dividend payout/reduction in earnings retention. In this case, an increase in the dividend payout will likely decrease the P/E ratio because a decrease in earnings retention will likely lower the P/E ratio. The logic is as follows: Because earnings retention impacts both the numerator (dividend payout) and denominator (g) of the P/E ratio, the impact of a change in earnings retention depends upon the relationship of k_e and ROE. If the company is earning a higher rate on new projects than the rate required by the market (ROE > k_e), investors will likely prefer that the company retain more earnings. Since an increase in the dividend payout would decrease earnings retention, the P/E ratio would fall, as investors will value the company lower if it retains a lower percentage of earnings.

Decrease in the expected inflation rate and decrease in the required rate of return. The expected inflation rate is a component of k_e (through the nominal risk-free rate). k_e can be represented by the following: nominal risk-free rate + stock risk premium, where nominal risk-free rate = [(1 + real risk-free rate) * (1 + expected inflation rate)] – 1.

§ If the rate of inflation decreases, the nominal risk-free rate will decrease.

§ k_e will decrease.

§ The spread between k_e and g, or the P/E denominator, will decrease.

§ P/E ratio will increase.

10.General, Inc., has net income of $650,000 and one million shares outstanding. The profit margin is 6 percent and General, Inc., is selling for $30.00. The price/sales ratio is equal to:

A)   2.77.

B)   10.83.

C)   0.06.

D)   0.65.

The correct answer was A)

6% profit margin = $650,000/x; x (sales) = $10,833,333.
Sales per share = $10.83 M/1,000,000 = $10.83 per share.
P/Sales = $30.00/$10.83 = 2.77.