MULTIPLE CHOICE

ASM Incorporated has a balance sheet that lists P70 million in assets, P45 million in liabilities,
and P25 million in common shareholders' equity. It has 1 million common shares outstanding.
The replacement cost of its assets is P85 million. Its share price in the market is P49. Its book
value per share is *
P16.67
P25
P37.50
P40.83

In relative valuation, comparable companies should be similar. Which of these is NOT a

relevant factor for similarity? *
geography
economy
stock price
size

A firm has current assets that could be sold for their book value of P10 million. The book
value of its fixed assets is P60 million, but they could be sold for P95 million today. The firm
has total debt at a book value of P40 million, but interest rate changes have increased the
value of the debt to a current market value of P50 million. This firm's price-to-book ratio is  *
1.83
1.5
1.35
1.46

Statement 1: A combination of a low price/book value ratio and a high expected return on
equity suggests that a stock is undervalued. Statement 2: Other things remaining equal, a
higher growth stock will have a higher price/book value ratio than a lower growth stock.  *
Both statements are True
Both statements are False
Only the first statement is true
Only the second statement is true

Firms with higher expected growth rates tend to have P/E ratios that are ___________ the
P/E ratios of firms with lower expected growth rates. *
higher than
equal to
lower than
There is not necessarily any linkage between risk and P/E ratios
Which of the following is NOT an advantage of relative valuation as compared to discounted
cash flow valuation? *
Relative valuation is unaffected by assumptions such as growth and ROE
Relative valuation can be used even when cash flows are negative
Relative valuation will incorporate current market perceptions
Relative valuation will always identify at least some securities as under and over-valued relative to each
other.

The price-to-sales ratio is probably most useful for firms in which phase of the industry life
cycle? *
Start-up phase
Consolidation
Maturity
Relative decline

Valneed Company reported a net income of P7,250,000 for the current year. It has 1,000,000
ordinary shares outstanding and 10% preference share with par totaling to P1,000,000. Firms
comparable to the company has a P/E multiple of 4. Compute for the relative value of
Valneed. *
P29.00
P29.40
P28.60
P28.20

The accounting measure of a firm's equity value generated by applying accounting principles
to asset and liability acquisitions is called: *
book value
market value
liquidation value
sales price

Which of the following would you consider the best indicator of an undervalued firm?  *
A firm with a P/E ratio lower than the market average.
A firm with a P/E ratio lower than the average P/E ratio for the firm's peer group.
A firm with a lower P/E ratio than its peer group, and a lower expected growth rate.
A firm with a lower P/E ratio than its peer group a higher expected growth rate, and higher risk.
A firm with a lower P/E ratio than its peer group, a lower expected growth rate, and lower risk.
A firm with a lower P/E ratio than its peer group, a higher expected growth rate, and lower risk.

Assuming all other factors remain unchanged, __________ would increase a firm's price-
earnings ratio. *
an increase in the dividend payout ratio
a reduction in investor risk aversion
an expected increase in the level of inflation
an increase in the yield on Treasury bills

Statement 1:Price/sales ratios can never fall below zero, whereas both price/earnings and
price/book value ratios can be negative. Statement 2: A firm with a high expected growth rate
will sell for a higher price/sales ratio than a firm with a lower expected growth rate. *
Both statements are True
Both statements are False
Only the first statement is true
Only the second statement is true

Which of the following is NOT a metric used in comparable company analysis? *

enterprise value to sales (EV/S)
price to earnings(P/E)
price to depreciation (P/D)
price to book (P/B)

Which among the following is most comparable to GMA Network Inc. *

Globe Telecom
San Miguel Corporation
Abs-Cbn Corporation
Petron Corporation

Statement 1: A stock that sells for less than book value is undervalued. Statement 2: If a
company's return on equity drops, its price/book value ratio will generally drop more than
proportionately, i.e., if the return on equity drops by half, the price/book value ratio will drop
by more than half. *
Both statements are True
Both statements are False
Only the first statement is true
Only the second statement is true

Problem Solving
Attach a photo or a scanned copy of your handwritten solutions to the following requirements.
Write your name on the upper left hand corner of each page of paper that you will use.
Round off your final answers to the second decimal place.
On this form, remove peso signs, percentage signs and commas.
Assuming that Northrop's earnings is P11/share, compute for the company's relative value
based on the industry average P/E ratio. *

148.33
Your answer
Assume that Logicon is the subject company and all others are comparable companies. How
much must be its relative value based on the median P/BV ratio of comparable companies if
its book value per share is P65? The ratio of the subject company must not be included in
computing the median ratio of comparable companies. *

196.95
Your answer
Compute of the average P/E ratio of the industry. Include the ratio of all companies in the
computation of industry average. *

13.2
Your answer
Using the the industry averages of the three ratios, would you buy Boeing at its current price?
Why? (Explanation should be on the handwritten solution) *

Yes
No