1.Which of the following statements about the franchise value method is TRUE? A) The franchise factor accounts for the present value of the excess returns from new investments. B) The firm’s tangible price-to-earnings (P/E) value is the sum of the firm’s intrinsic P/E value and franchise P/E value. C) The franchise factor accounts for the required returns from new investments. D) Franchise value occurs when there is benefit in distributing profits to shareholders as opposed to reinvesting them within the firm. The correct answer was C) The intrinsic P/E value is the sum of the tangible P/E value and the franchise P/E value. The franchise P/E can be analyzed as two components: a franchise factor that accounts for the required return from new investments, and a growth factor that accounts for the present value of excess returns from new investments. Franchise value occurs when there is benefit in reinvesting profits within the firm rather than distributing them to the shareholders. 2.Which of the following variables is least likely to be applicable in analyzing the price-to-earnings (P/E) values for a firm? A) Return on equity. B) Tax rate. C) Earnings retention ratio. D) Rate of return demanded by investors. The correct answer was B) The tax rate is not generally applicable in an analysis of P/E values. Presumably, the earnings are already taxed at the firm level. All the other variables are important components in the analysis and calculation of P/E values. 3.If a firm’s return on equity (ROE) is greater than the rate of return demanded by investors (r), which of the following statements is TRUE? There is: A) potential franchise value. B) negative franchise value. C) a low franchise price-to-earnings (P/E) value. D) a high franchise P/E value. The correct answer was A) If ROE is greater than r, then there is some benefit in reinvesting the earnings within the firm, therefore, there is potential franchise value. | 
发表于 2008-5-13 16:35
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