 Question 1

2 out of 2 points
The return that investors feel is most likely to occur based on currently available information is
known as the required return.

Selected Answer:  
False

Answers: True

 
False

 Question 2
2 out of 2 points
The cost of debt used in computing for WACC for capital budgeting purposes is after-tax
because interest payments are deducted in computing for the corporate taxes.

Selected Answer:  
True

Answers:  
True

False

 Question 3
3 out of 3 points
Determine the (after-tax) component cost of a P50 million debt issue that the Mattingly
Corporation is planning to place with a large insurance company. Assume the company is
subject to a 40% tax rate. This long-term debt issue will yield 12% to the insurance company.

Selected Answer:  
7.2%

Answers: 4.8%

 
7.2%

12.0%

None of the above

 Question 4
0 out of 2 points
Even if the company changes its investment policy relative to its risk, both the cost of debt and
cost of equity will not change.
 Selected Answer:  
True

Answers: True

 
False

 Question 5
3 out of 3 points
Use the dividend growth or Gordon model to develop the cost of retained earnings if last year's
dividend was P2.25, the anticipated constant growth rate is 5% the stock's selling price today is
P36 per share, and flotation costs are estimated to be 11%?

Selected Answer:  
11.6%

Answers: 15.3%

 
11.6%

10.9%

14.9%

 Question 6
2 out of 2 points
The cost of perpetual preferred stock is found as the preferred's annual dividend divided by the
market price of the preferred stock. No adjustment is needed for taxes because preferred
dividends, unlike interest on debt, is not deductable by the issuing firm.

Selected Answer:  
True

Answers:  
True

False

 Question 7
0 out of 2 points
In computing for the WACC specifically for capital budgeting purposes, both flotation costs and
corporate taxes have an effect on all capital components (assuming that the company has run-
out of retained earnings).

Selected Answer:  
True
 Answers: True

 
False

 Question 8
2 out of 2 points
The standard deviation is the square root of the variance.

Selected Answer:  
True

Answers:  
True

False

 Question 9
3 out of 3 points
Allegheny Valley Power Company common stock has a beta of 0.80. If the current risk-free rate
is 6.5% and the expected return on the stock market as a whole is 16%, determine the cost of
retained earnings for the firm (using the CAPM).

Selected Answer:  
14.1%

Answers:  
14.1%

7.6%

6.5%

8.0%

 Question 10
0 out of 2 points
Capital gains are included in the return on an investment whether or not the investment is sold.

Selected Answer:  
False

Answers:  
True

False

 Question 11
2 out of 2 points
 One of the criticisms of CAPM is that it uses a single period model and cannot be recomputed at
regular intervals. F

Selected Answer:  
False

Answers: True

 
False

 Question 12
0 out of 3 points
Peter Industries’ capital structure consists solely of debt and common equity.  It can issue debt at
10%., and its last common stock dividend was P3 per share.  The current stock price is P20.  Its
dividend is expected to grow at a constant rate of 5% per year, its tax rate is 35%, and its WACC is
14%.  What percentage of the Peter’s capital structure consists of common equity? 

Instruction: Round-off your answer to the nearest centavo. Round-off only at your final answer. Do
not put any peso or percentage sign. Answer in percentage must be written as 9.00 for 9.00%.

Selected Answer:  15.75

Correct Answer:  52.63
Answer range +/- 0 (52.63 - 52.63 )
 Question 13
0 out of 3 points
Calculate the cost of preferred stock for Ohio Valley Power Company, which is planning to sell
P100 million of P3.25 cumulative preferred stock to the public at a price of P25 per share.
Flotation costs are P1.00 per share. Ohio Valley has a marginal income tax rate of 40%.

Selected Answer:  
13.0%

Answers: 13.0%

7.8%

8.12%

 
13.54%

 Question 14
2 out of 2 points
The level of interest rates in the market eventually affects the cost of debt and the cost of
equity.

Selected Answer:  
 True

Answers:  
True

False

 Question 15
3 out of 3 points
An asset had annual returns of 13, 10, −14, 3, and 36 percent, respectively, for the past five
years. What is the standard deviation of these returns?

Selected Answer:  
18.09%

Answers: 8.96%

16.05%

17.92%

 
18.09%

 Question 16
0 out of 3 points
Mr. Richard Timbang has a P40 million portfolio with a beta of 1.20.  The risk-free rate is 5.0%, and
the market risk premium is 6.00%.  Mr. Timbang expects to receive an additional P40 million which
he plans to invest in stock market.  After investing the additional funds, he wants the fund’s required
and expected return to be 15.00%.  What must the average beta of the new stocks be to achieve the
target required rate of return?

Instruction: Round-off your answer to the nearest centavo. Round-off only at your final answer. Do
not put any peso or percentage sign. Answer in percentage must be written as 9.00 for 9.00%.

Selected Answer:  10.00

Correct Answer:  2.13
Answer range +/- 0 (2.13 - 2.13 )
 Question 17
3 out of 3 points
Assume a firm's bonds are currently yielding new investors 6%. The combined federal and state
tax rate is 40%. What is the firm's after-tax cost of debt is?

Selected Answer:  
3.6%

Answers:  
3.6%
 4.0%

4.8%

6.0%

 Question 18
2 out of 2 points
The standard deviation is a measure of volatility.

Selected Answer:  
True

Answers:  
True

False

 Question 19
2 out of 2 points
The CAPM helps to determine the appropriate required rate of return of an individual asset or a
portfolio for different levels of risk.

Selected Answer:  
True

Answers:  
True

False

 Question 20
2 out of 2 points
The effect of flotation cost, the cost of issuing new common stocks, is that it increases the cost
of capital if it is deducted from the stock price to get the net proceeds.

Selected Answer:  
True

Answers:  
True

False

 Question 21
3 out of 3 points
An asset had annual returns of 12, 18, 6, −9, and 5 percent, respectively, for the last five years.
What is the variance of these returns?
 Selected Answer:  
0.01013

Answers: 0.00810

 
0.01013

0.01065

0.02038

 Question 22
3 out of 3 points
Xavier Company has a before-tax cost of debt of 6.5%, cost of preferred stock (RP) of 10% and cost
of equity (RS) of 12%.  It also has 40% of debt, 30% of preferred stocks and 30% of common stock. 
Its tax rate is 30%.  What is Xavier’s composite WACC? 

 Instruction: Round-off your answer to the nearest centavo. Round-off only at your final answer. Do
not put any peso or percentage sign. Answer in percentage must be written as 9.00 for 9.0%.
Selected Answer:  8.42
Correct Answer:  8.42
Answer range +/- 0 (8.42 - 8.42 )
 Question 23
0 out of 3 points
M2M recently hired Aiza as a consultant to estimate the company’s WACC.  Aiza have obtained the
following information. 

a. The firm's noncallable bonds mature in 20 years, have an 8.00% annual coupon, a par value
of P1,000, and a market price of P1,075.00. 
b. M2M’s tax rate is 30%. 
c. The risk-free rate is 5.0%, the market premium is 6.0%, and the stock’s beta is 1.20. 
d. The target capital structure consists of 40% debt and the balance is common equity.  The
firm uses the CAPM to estimate the cost of equity, and it does not expect to issue any new
common stock. 
 

 Required: Compute for the cost of debt after tax.

Instruction: Round-off your answer to the nearest centavo. Round-off only at your final answer. Do
not put any peso or percentage sign. Answer in percentage must be written as 9.00 for 9.00%.

Selected Answer:  5.60

Correct Answer:  5.11
Answer range +/- 0 (5.11 - 5.11 )
 Question 24
2 out of 2 points
 The correlation of coefficient measures the risk per unit of return.

Selected Answer:  
True

Answers:  
True

False

 Question 25
3 out of 3 points
Groves, Inc. pays an annual dividend of P1.22. This dividend is expected to continue growing at
a rate of about 5 percent each year. The firm is in a fairly risky business and has a beta of 1.45.
The expected market rate of return is 13.5 percent, and the risk-free rate is 9.3 percent. What is
the cost of equity for Groves?

Selected Answer:  
15.4%

Answers: 19.6%

13.5%

 
15.4%

6.1%

 Question 26
2 out of 2 points
A portfolio beta is computed as the simple average of the beta of all individual assets in a
portfolio.

Selected Answer:  
False

Answers: True

 
False

 Question 27
2 out of 2 points
The WACC does not include the cost on the use of retained earnings.

Selected Answer:  
False
 Answers: True

 
False

 Question 28
2 out of 2 points
The intrinsic value is regarded as the observable value of the stock while the stock price is said
to be the true value of the stock.

Selected Answer:  
False

Answers: True

 
False

 Question 29
2 out of 2 points
The cost of common equity obtained by retaining earnings is the rate of return the marginal
stockholder requires on the firm's common stock.

Selected Answer:  
True

Answers:  
True

False

 Question 30
3 out of 3 points
Kirchner Exports has a beta of 1.2. The risk free rate is 5% and the return on an average stock is
10.6%. Estimate Kirchner's cost of retained earnings.

Selected Answer:  
11.72%

Answers: 10.60%

 
11.72%

12.72%

13.72%

 Question 31
3 out of 3 points
 Jimmy purchased a stock for P22.22 a share, received a dividend of P.55 a share, and sold the
stock after one year for P25.36 a share. What was his dividend yield on this investment?

Selected Answer:  
2.48%

Answers: 2.30%

2.38%

 
2.48%

2.56%

 Question 32
2 out of 2 points
The total return can be negative but the dividend yield cannot be negative.

Selected Answer:  
True

Answers:  
True

False

 Question 33
0 out of 3 points
What is the cost of a preferred stock with a P100 par value that pays a P9.60 dividend per year?
The security has a flotation cost of P3.37 and will be retired at its par value in 20 years.

Selected Answer:  
9.9%

Answers: 9.6%

9.9%

 
10.0%

10.6%

 Question 34
3 out of 3 points
Determine the weighted cost of capital for the Mills Company that will finance its optimal capital
budget with P120 million of long-term debt (kd = 12.5%) and P180 million in retained earnings
(ke = 16.0%). Mills' present capital structure is considered optimal. The company's marginal tax
rate is 40%.
 Selected Answer:  
12.6%

Answers: 14.3%

 
12.6%

14.6%

11.9%

 Question 35
2 out of 2 points
A lower coefficient of variation indicates more risk per unit of return.

Selected Answer:  
False

Answers: True

 
False

 Question 36
3 out of 3 points
Mr. T holds a portfolio consisting of a P25,000 investment in each of 10 different common stocks. 
The portfolio’s beta is 1.50.  Assuming, Mr. T decided to sell one of the stocks that has a beta of 1.00
and to use the proceeds to buy a replacement stock with a beta of 1.20.  What would the portfolio’s
new beta be?

Instruction: Round-off your answer to the nearest centavo. Round-off only at your final answer. Do
not put any peso or percentage sign. Answer in percentage must be written as 9.00 for 9.00%.

Selected Answer:  1.52

Correct Answer:  1.52
Answer range +/- 0 (1.52 - 1.52 )
 Question 37
2 out of 2 points
The cost of issuing preferred stock by a corporation must be adjusted to an after-tax figure
because of the 70 percent dividend exclusion provision for corporations holding other
corporations' preferred stock.

Selected Answer:  
False

Answers: True
  
False

 Question 38
3 out of 3 points
What is the cost of equity for East Roon, if the firm is expected to always pay a constant
dividend of P2.22? The firm's common stock is presently selling for P18.50.

Selected Answer:  
12.0%

Answers: 8.3%

 
12.0%

10.2%

12.5

 Question 39
3 out of 3 points
BOT Co.’s common stock currently sells for P50 per share. The growth rate is a constant 12%, and
the company has an expected dividend yield of 7%. The expected long-run dividend payout ratio is
25%, and the expected return on equity (ROE) is 15%. New stock can be sold to the public at the
current price, but a flotation cost of 10% would be incurred. What would be the cost of new equity?

Instruction: Round-off your answer to the nearest centavo. Round-off only at your final answer. Do
not put any peso or percentage sign. Answer in percentage must be written as 9.00 for 9.00%.

Selected Answer:  19.78

Correct Answer:  19.78
Answer range +/- 0 (19.78 - 19.78 )
 Question 40
0 out of 3 points
You purchased a stock eight months ago for P55 a share. Today, you sold that stock for P64.50 a
share. The stock pays no dividends. What was your annualized rate of return?

Selected Answer:  
17.27%

Answers: 17.27%

18.15%

18.35%

 
 27.00%

 Question 1
0 out of 2 points
"(Stock risks) All other factors remaining the same, changes in net income year-on-year would
certainly make such stock's price more volatile."
Selected Answer:
True
Answers: True

False
 Question 2
3 out of 3 points
"AAA s current stock price is P100 and giving dividends at P20 per share since last year. The
company announced an annual increase of dividend by 10% starting next year. At its current
price, what is the rate of return?"

Selected Answer:  
32%

Answers: 11%

21%

 
32%

16%

 Question 3
2 out of 2 points
(Bonds Valuation) Premiums and discounts are adjustments to interest rates stated in bond
indentures.
Selected Answer:
True
Answers:
True
False
 Question 4
3 out of 3 points
"AAA Corp. pays an annual dividend of P85.00 and is expected to continue paying this dividend
at the same amount thereafter. Investors require a 10% rate of return on investment. At the
current risk-free rate is 5%, what is the current stock value?"

Selected Answer:  
 P850

Answers: P775

P800

P825

 
P850

 Question 5
2 out of 2 points
(Bond Risks) Bonds are also exposed to credit risk despite going through registration and being
authorized to issue by the Securities and Exchange Commission.
Selected Answer:
True
Answers:
True
False
 Question 6
3 out of 3 points
"If an investor holding an investible fund of one million desires have a rate of return of 15% on
stock investment, how much should the investee-firm distribute as dividend next year?
(assuming continuous constant dividend)"

Selected Answer:  
"P150,000"

Answers: "P869,565"

"P100,000"

 
"P150,000"

not determinable

 Question 7
0 out of 2 points
"
Selected Answer:
True
Answers: True

False
 Question 8
 2 out of 2 points
"(Firm Valuation) Firms can ONLY be valued on an ""going concern"" assumption."
Selected Answer:
False
Answers: True

False
 Question 9
3 out of 3 points
"Based on the following data, what is the Free Cash Flow to Equity (FCFE)? Net Income P100,000;
Debt Repayment P20,000; Borrowing P50,000; Depreciation P10,000; Investment in Fixed Assets
P40,000; Increase in [non-cash] working capital P8,000."

Selected Answer:  
"P92,000"

Answers: "P90,000"

"P110,000"

"P78,000"

 
"P92,000"

 Question 10
0 out of 2 points
"
Selected Answer:
True
Answers: True

False
 Question 11
3 out of 3 points
"AAA Corp. has a book value of P500.00 and is expected to pay a dividend of P20.00 starting
next year. The dividend is expected to grow annually at a constant rate of 5%. If market return is
at 12%, at what price can the stock be traded?"

Selected Answer:  
P286

Answers:  
P286

P500
 P480

P446

 Question 12
0 out of 2 points
"
Selected Answer:
True
Answers: True

False
 Question 13
0 out of 2 points
"
Selected Answer:
True
Answers: True

False
 Question 14
0 out of 3 points
"AAA Corp. paid dividend of P50 per share this year and its current share price is P1,000. If
required returns is 15%, what is the implied growth rate under Gordon Growth Model?"

Selected Answer:  
10.00%

Answers: 10.00%

 
9.52%

11.00%

8.32%

 Question 15
0 out of 2 points
"
Selected Answer:
True
Answers: True

False
 Question 16
3 out of 3 points
"AAA is giving dividends at P20 per share since last year. The company announced an annual
increase of dividend by 10% starting next year. At a required return of 16%, what is the current
value of its stock??"

Selected Answer:  
P370

Answers: P200

 
P370

P410

P180

 Question 17
0 out of 2 points
(Bond Risks) Interest rates of US Treasury Bills are considered risk-free for CAPM computation
purposes in determining market rate regardless of geography.
Selected Answer:
True
Answers: True

False
 Question 18
3 out of 3 points
"AAA Corp. just paid dividend of P50 per share and expect a constant 8% annual increase
thereafter. If the expected return are the following, what is the current price? Year 1 to 2-
10%;Year 3 to 5-15%;Year 6 and onward 12%."

Selected Answer:  
"P1,303"

Answers:  
"P1,303"

"P1,459"

"P1,984"

"P1,250"

 Question 19
0 out of 2 points
(Efficient Market Hypothesis) Prices of stocks in the stock market are likely to change due to
 income earned by the companies as soon as the audited financial statements are filed with the
Bureau of Internal Revenue.
Selected Answer:
True
Answers: True

False
 Question 20
0 out of 2 points
"
Selected Answer:
[None Given]
Answers: True

False
 Question 21
0 out of 3 points
"AAA Corp. paid dividends of P20 per share this year. The company is expected to increase
dividend by 5% per year for the next two years then maintain a constant increase of 3% per
year thereafter. If the required return is 12%, what is the current value of AAA s stocks? [round-
off on your final answer only]"

Selected Answer:  
P273

Answers: P252

 
P238

P66

P273

 Question 22
0 out of 2 points
"
Selected Answer:
[None Given]
Answers: True

False
 Question 23
3 out of 3 points
 What would an investor be willing to pay for a share of preferred stock that paid an annual P10
dividend if the yield on preferred was 0.50% below the A bond yield of 9%?

Selected Answer:  
P117.65

Answers: P177.50

P87.65

 
P117.65

P93.25

 Question 24
0 out of 3 points
"AAA Corp. has been paying dividends of P20 per share for the last 5 years and is expected to
do so until the next two years. Starting the third year, it is expected to increase its dividend
payment by 20% and remain constant for the rest of the years to come. If the required return is
12%, what is the current value of AAA s stocks?"

Selected Answer:  
P200

Answers:  
P193

P200

P234

P159

 Question 25
3 out of 3 points
"What is the value of a 6%, five year bond with annual coupons and face value equal to P1,000,
if the current yield to maturity is 6%?"

Selected Answer:  
"P1,000 "

Answers: "P1,089 "

P920

"P1,200 "

 
"P1,000 "
 Question 26
3 out of 3 points
AAA Corp. s bond with semi-annual coupon of 8% is currently quoted at 105. What is its current
yield?

Selected Answer:  
7.62%

Answers: 8.40%

 
7.62%

13.12%

6.21%

 Question 27
2 out of 2 points
(Stock Trading) Corporations strive to increase their share prices in order to increase cash flows
to the corporation as a result of stock sales in the secondary market.
Selected Answer:
False
Answers: True

False
 Question 28
3 out of 3 points
"AAA Corp. issued a 5-year, zero coupon bond with face amount of P50,000. What is the bond
price if the desired return is 10%?"

Selected Answer:  
"P31,046"

Answers: "P50,000"

 
"P31,046"

"P38,645"

"P40,523"

 Question 29
3 out of 3 points
"AAA Corp. Inc. has a currently trading at P400.00 and expects to pay a dividend of P15.00. The
dividend is expected to increase by 6% annually. AAA s beta is 0.88, market rate of return is
expected to be at around 12%, and risk-free rate of interest is 5%. The expected stock price
 today is closest to:"

Selected Answer:  
P291

Answers: P299

P285

 
P291

P260

 Question 30
3 out of 3 points
"An analyst observes a 5-year, 10% coupon bond with semiannual payments. The face value is
P1,000 and is selling at 105. How much is each coupon payment?"

Selected Answer:  
P50

Answers: P105

P25

 
P50

P100

 Question 31
3 out of 3 points
"A Treasury bond is quoted at a price of 108. What is the market price of this bond if the face
value is P50,000?"

Selected Answer:  
"P54,000"

Answers: "P50,000"

 
"P54,000"

"P46,296"

"P50,400"

 Question 32
0 out of 3 points
"Given the following data, what is the Free Cash Flow to Equity (FCFE)? Cash flow from
 operations P250,000; Depreciation - P40,000; Interest expense P10,000; Tax rate - 30%; Net
increase in working capital P50,000; Investment in fixed assets P50,000; Net borrowing
P80,000."

Selected Answer:  
"P260,000"

Answers: "P260,000"

 
"P280,000"

"P250,000"

"P200,000"

 Question 33
0 out of 2 points
"
Selected Answer:
[None Given]
Answers: True

False
 Question 34
0 out of 2 points
"(Stock Valuation) If the computed intrinsic value of a stock is lower than the offer price, it is
likely that said issue would be sold at a premium."
Selected Answer:
True
Answers: True

False
 Question 35
0 out of 2 points
"
Selected Answer:
[None Given]
Answers: True

False
 Question 36
3 out of 3 points
"AAA Corp. issued a 5-year, 5% annual coupon bond with face amount of P50,000. What is the
 bond price if the desired return is 10%?"

Selected Answer:  
"P40,523"

Answers: "P50,000"

"P38,250"

"P38,645"

 
"P40,523"

 Question 37
0 out of 2 points
"
Selected Answer:
[None Given]
Answers: True

False
 Question 38
3 out of 3 points
"AAA Corp. issued a 5-year, 5% annual coupon bond with face amount of P50,000. What is the
clean price of this bond if the next interest payment is due in two months and the bond is
currently quoted at 98? (clean price mean price excluding accrued interest payments)"

Selected Answer:  
"P49,000"

Answers:  
"P49,000"

"P50,000"

"P49,583"

"P47,550"

 Question 39
0 out of 2 points
"
Selected Answer:
[None Given]
Answers: True
 False
 Question 40
2 out of 2 points
(Bond Pricing) Zero coupon bonds are ALWAYS bought/sold at a discount regardless of market
condition.
Selected Answer:
True
Answers:
True
False
 Question 1
0 out of 2 points
Cost of funds from angel capitalist is much lower than borrowing from a bank.
Selected Answer:
True
Answers: True

False
 Question 2
3 out of 3 points
"If free cash flow of the firm is at P10M with interest expense to the firm at P500k, net increase
in borrowings of P600k, what is the free cash flow to equity assuming applicable tax rate is
25%?"

Selected Answer:
 
P10.225M

Answers: P10M

P9.5M

P10.6M

 
P10.225M

 Question 3
3 out of 3 points
"If market value of a firm s assets and liabilities are P1M and P250k, respectively, and book
value per share of P10 at 100k shares outstanding, what is the market to book ratio?"

Selected Answer:
 
0.75

Answers: 1
  
0.75

1.5

 Question 4
2 out of 2 points
The corporate valuation model can be used both for companies that pay dividends and those
that do not pay dividends.
Selected Answer:
True
Answers:
True
False
 Question 5
3 out of 3 points
Firm X s profit margin is 30%. ROA is 8%. What is the ROE if equity multiplier is 2?

Selected Answer:
 
0.16

Answers:
 
0.16

0.17

0.18

0.19

 Question 6
3 out of 3 points
"Firm X s current stock price is P5 while book value is at P3.5 per share. If total outstanding
shares is 1,000,000 of which 40% is in the stock market, what is the total market capitalization of
Firm X?"

Selected Answer:
 
"P2,000,000"

Answers: "P5,000,000"

"P3,500,000"

 
"P2,000,000"

"P1,400,000"
 Question 7
2 out of 2 points
"If Firm X's P/E ratio exceeds that of Firm Y, then Y is likely to be less risky and/or be expected to
grow at a faster rate."
Selected Answer:
False
Answers: True

False
 Question 8
2 out of 2 points
Dividend payout ratio is a good basis of valuation for startup companies.
Selected Answer:
False
Answers: True

False
 Question 9
0 out of 3 points
"Firm X reported an earnings per share of P5.00 in 2021 and consistently paid dividends of
P2.00 per share yearly. If market return is 5%, what is the P/E Ratio of Firm X?"

Selected Answer:
 
0.4

Answers: 20

 
8

2.5

0.4

 Question 10
2 out of 2 points
It is not likely that a company can be valued in the market at a price lower that itâ s book value.
Selected Answer:
False
Answers: True

False
 Question 11
3 out of 3 points
"Firm X reported an earnings per share of P5.00 in 2021 and consistently paid dividends of
P2.00 per share yearly. If market return is 5%, what is the payout ratio of Firm X?"
 Selected Answer:
 
0.4

Answers: 2.5

0.2

 
0.4

0.5

 Question 12
2 out of 2 points
"The price/earnings (P/E) ratio tells us how much investors are willing to pay for a dollar of
current earnings. In general, investors regard companies with higher P/E ratios as being more
risky and/or less likely to enjoy higher future growth."
Selected Answer:
False
Answers: True

False
 Question 13
0 out of 3 points
"If Firm X and Firm Y both have P/E ratio of 20 and Firm X s PEG ratio is higher than Firm Y,
which statement is true?"

Selected Answer:
 
Firm X has a higher market value per share than Firm Y

Answers: Firm X has more net income than Firm Y

 
Firm Y is increasing its earnings at a faster rate than the Firm X

Firm X has a higher market value per share than Firm Y

Firm Y has a lower market-to-book ratio than Firm X.

 Question 14
2 out of 2 points
The value of companyâ s P/E ratio is above the industry average is said to be undervalued.
Selected Answer:
False
Answers: True

False
 Question 15
 2 out of 2 points
Angel investors are likely to use Gordon Growth Model in their investment analysis for easy
computation.
Selected Answer:
False
Answers: True

False
 Question 16
3 out of 3 points
"Firm X s Price-Sales ratio is 2 and annual sales of P2M with a 10% profit margin. At 100,000
shares outstanding, what is Firm X s P/E ratio?"

Selected Answer:
 
20

Answers:
 
20

25

30

35

 Question 17
3 out of 3 points
"Given the following data: EBIT = P4,000, applicable tax rate 25%, depreciation is P500, capital
expenditures of P800, net increase in working capital of P300, what is the free cash flow to the
firm?"

Selected Answer:
 
2400

Answers: 2000

 
2400

3000

2900

 Question 18
3 out of 3 points
"Firm X reported an earnings per share of P8.00 in 2021 and consistently paid dividends of
P2.50 per share yearly. If market return is 5% and earnings is expected to grow 1% year, what is
the P/E Ratio of Firm X?"
 Selected Answer:
 
7.81

Answers: 20

125

10.42

 
7.81

 Question 19
2 out of 2 points
A lower P/E ratio of a company compared to its rivals is enough basis to conclude that itâ s time
to buy.
Selected Answer:
False
Answers: True

False
 Question 20
3 out of 3 points
"If Firm X s sales is P1M, profit margin of 5% with a total of 10,000 shares outstanding. What is
its P/E ratio if the stock is selling at P50?"

Selected Answer:
 
P10

Answers: P5

P50

P20

 
P10

 Question 21
2 out of 2 points
"The price/earnings (P/E) ratio tells us how much investors are willing to pay for a dollar of
current earnings. In general, investors regard companies with higher P/E ratios as being less
risky and/or more likely to enjoy higher growth in the future."
Selected Answer:
True
Answers:
True
False
 Question 22
0 out of 2 points
Price-to-Book Value ratio works better for companies with real assets than financial assets.
Selected Answer:
False
Answers:
True
False
 Question 23
2 out of 2 points
"Assume that the required return on a given stock is 13%. If the stock's dividend is growing at a
constant rate of 5%, its expected dividend yield is 5% as well."
Selected Answer:
False
Answers: True

False
 Question 24
2 out of 2 points
"If Firms X and Y have the same net income, number of shares outstanding, and price per share,
then their market-to-book ratios must also be the same."
Selected Answer:
False
Answers: True

False
 Question 25
2 out of 2 points
Distressed company (e.g., a company at the brink of bankruptcy) is not valued anymore since itâ
s not likely that anybody would be interested in buying its shares.
Selected Answer:
False
Answers: True

False
 Question 26
2 out of 2 points
Projected free cash flow to the firm should be discounted at the firm's cost of equity to find the
firm's total corporate value.
Selected Answer:
False
Answers: True
 False
 Question 27
3 out of 3 points
"If estimated ROE at year-end is 20% and dividend payout is 25%, what is the estimated growth
rate?"

Selected Answer:
 
0.15

Answers: 0.1

 
0.15

0.05

0.5

 Question 28
3 out of 3 points
"Firm X relevant financial data are as follows: Sales - P500,000, Profit from operation P50,000,
Interest expenses P10,000, Taxes P20,000, Stockholders Equity P125,000, Total Liabilities
P275,000. What is the debt to assets ratio? (choose the closest)"

Selected Answer:
 
0.69

Answers: 0.5

0.65

 
0.69

 Question 29
2 out of 2 points
P/E Growth is a reliable valuation reference for companies in the sunset industries.
Selected Answer:
False
Answers: True

False
 Question 30
3 out of 3 points
"Considering the following data for Firm X, what is its P/E Ratio? Expected EPS - P10, Growth rate
2%, Payout Ratio 0.50, Market rate 5%"
 Selected Answer:
 
17

Answers:
 
17

10

25

 Question 31
0 out of 3 points
"Firm X s earnings per share is P4 with growth rate of 5%. Total outstanding shares of stock is
100,000. What is the PEG ratio of Firm X if its shares are trading at P20?"

Selected Answer:
 
100

Answers: 100

 
1

200

 Question 32
2 out of 2 points
Stocks with high P/E Ratio may be consider as growth stocks. As such, itâ s relatively risky and
therefore may be overvalued.
Selected Answer:
True
Answers:
True
False
 Question 33
3 out of 3 points
"Using the following data: P/E ratio 5, Sales P1M, Profit margin 5%, shares outstanding 100,000
shares. What is the price-sales ratio?"

Selected Answer:
 
0.25

Answers: 0.5

0.1
  
0.25

0.3

 Question 34
2 out of 2 points
It is appropriate to use the constant growth model to estimate a stock's value even if its growth
rate is never expected to become constant.
Selected Answer:
False
Answers: True

False
 Question 35
0 out of 2 points
"If Firms X and Y have the same P/E ratios, then their market-to-book ratios must also be equal."
Selected Answer:
False
Answers:
True
False
 Question 36
3 out of 3 points
"If Firm X s share is currently selling at P80, EPS at P4, ROE of 15%, and Dividend Payout Ratio of
50%, what is Firm X s Price-Earnings Growth (PEG) ratio?"

Selected Answer:
 
267

Answers: 125

 
267

100

80

 Question 37
3 out of 3 points
"Firm X expects EPS for the year to be at P2.50. If P/E Ratio is 10 for companies in Firm X s
industry, what is the estimated price of Firm X s stocks?"

Selected Answer:
 
25
 Answers: 4

 
25

0.25

2.5

 Question 38
2 out of 2 points
Having low payout ratio will likely be priced lower in the market.
Selected Answer:
False
Answers: True

False
 Question 39
3 out of 3 points
"Compute for the number of shares of stocks outstanding if a company has a net income of
P1M, P/E ratio of 20, and EPS of P4."

Selected Answer:
 
250k

Answers:
 
250k

12.5k

500k

150k

 Question 40
3 out of 3 points
"If Firm X s BV/share is P20, P/E ratio is 30, sales of P3M, net income of 250k, and total
outstanding share is 250,000 shares, what is the market to book ratio?"

Selected Answer:
 
1.5

Answers: 2

 
1.5
 1

 Question 1
0 out of 2 points
Cost of funds from angel capitalist is much lower than borrowing from a bank.
Selected Answer:
True
Answers: True

False
 Question 2
3 out of 3 points
"If free cash flow of the firm is at P10M with interest expense to the firm at P500k, net increase
in borrowings of P600k, what is the free cash flow to equity assuming applicable tax rate is
25%?"

Selected Answer:
 
P10.225M

Answers: P10M

P9.5M

P10.6M

 
P10.225M

 Question 3
3 out of 3 points
"If market value of a firm s assets and liabilities are P1M and P250k, respectively, and book
value per share of P10 at 100k shares outstanding, what is the market to book ratio?"

Selected Answer:
 
0.75

Answers: 1

 
0.75

1.5

 Question 4
2 out of 2 points
The corporate valuation model can be used both for companies that pay dividends and those
that do not pay dividends.
 Selected Answer:
True
Answers:
True
False
 Question 5
3 out of 3 points
Firm X s profit margin is 30%. ROA is 8%. What is the ROE if equity multiplier is 2?

Selected Answer:
 
0.16

Answers:
 
0.16

0.17

0.18

0.19

 Question 6
3 out of 3 points
"Firm X s current stock price is P5 while book value is at P3.5 per share. If total outstanding
shares is 1,000,000 of which 40% is in the stock market, what is the total market capitalization of
Firm X?"

Selected Answer:
 
"P2,000,000"

Answers: "P5,000,000"

"P3,500,000"

 
"P2,000,000"

"P1,400,000"

 Question 7
2 out of 2 points
"If Firm X's P/E ratio exceeds that of Firm Y, then Y is likely to be less risky and/or be expected to
grow at a faster rate."
Selected Answer:
False
Answers: True

False
 Question 8
2 out of 2 points
Dividend payout ratio is a good basis of valuation for startup companies.
Selected Answer:
False
Answers: True

False
 Question 9
0 out of 3 points
"Firm X reported an earnings per share of P5.00 in 2021 and consistently paid dividends of
P2.00 per share yearly. If market return is 5%, what is the P/E Ratio of Firm X?"

Selected Answer:
 
0.4

Answers: 20

 
8

2.5

0.4

 Question 10
2 out of 2 points
It is not likely that a company can be valued in the market at a price lower that itâ s book value.
Selected Answer:
False
Answers: True

False
 Question 11
3 out of 3 points
"Firm X reported an earnings per share of P5.00 in 2021 and consistently paid dividends of
P2.00 per share yearly. If market return is 5%, what is the payout ratio of Firm X?"

Selected Answer:
 
0.4

Answers: 2.5

0.2

 
0.4
 0.5

 Question 12
2 out of 2 points
"The price/earnings (P/E) ratio tells us how much investors are willing to pay for a dollar of
current earnings. In general, investors regard companies with higher P/E ratios as being more
risky and/or less likely to enjoy higher future growth."
Selected Answer:
False
Answers: True

False
 Question 13
0 out of 3 points
"If Firm X and Firm Y both have P/E ratio of 20 and Firm X s PEG ratio is higher than Firm Y,
which statement is true?"

Selected Answer:
 
Firm X has a higher market value per share than Firm Y

Answers: Firm X has more net income than Firm Y

 
Firm Y is increasing its earnings at a faster rate than the Firm X

Firm X has a higher market value per share than Firm Y

Firm Y has a lower market-to-book ratio than Firm X.

 Question 14
2 out of 2 points
The value of companyâ s P/E ratio is above the industry average is said to be undervalued.
Selected Answer:
False
Answers: True

False
 Question 15
2 out of 2 points
Angel investors are likely to use Gordon Growth Model in their investment analysis for easy
computation.
Selected Answer:
False
Answers: True

False
 Question 16
3 out of 3 points
"Firm X s Price-Sales ratio is 2 and annual sales of P2M with a 10% profit margin. At 100,000
shares outstanding, what is Firm X s P/E ratio?"

Selected Answer:
 
20

Answers:
 
20

25

30

35

 Question 17
3 out of 3 points
"Given the following data: EBIT = P4,000, applicable tax rate 25%, depreciation is P500, capital
expenditures of P800, net increase in working capital of P300, what is the free cash flow to the
firm?"

Selected Answer:
 
2400

Answers: 2000

 
2400

3000

2900

 Question 18
3 out of 3 points
"Firm X reported an earnings per share of P8.00 in 2021 and consistently paid dividends of
P2.50 per share yearly. If market return is 5% and earnings is expected to grow 1% year, what is
the P/E Ratio of Firm X?"

Selected Answer:
 
7.81

Answers: 20

125

10.42
  
7.81

 Question 19
2 out of 2 points
A lower P/E ratio of a company compared to its rivals is enough basis to conclude that itâ s time
to buy.
Selected Answer:
False
Answers: True

False
 Question 20
3 out of 3 points
"If Firm X s sales is P1M, profit margin of 5% with a total of 10,000 shares outstanding. What is
its P/E ratio if the stock is selling at P50?"

Selected Answer:
 
P10

Answers: P5

P50

P20

 
P10

 Question 21
2 out of 2 points
"The price/earnings (P/E) ratio tells us how much investors are willing to pay for a dollar of
current earnings. In general, investors regard companies with higher P/E ratios as being less
risky and/or more likely to enjoy higher growth in the future."
Selected Answer:
True
Answers:
True
False
 Question 22
0 out of 2 points
Price-to-Book Value ratio works better for companies with real assets than financial assets.
Selected Answer:
False
Answers:
True
 False
 Question 23
2 out of 2 points
"Assume that the required return on a given stock is 13%. If the stock's dividend is growing at a
constant rate of 5%, its expected dividend yield is 5% as well."
Selected Answer:
False
Answers: True

False
 Question 24
2 out of 2 points
"If Firms X and Y have the same net income, number of shares outstanding, and price per share,
then their market-to-book ratios must also be the same."
Selected Answer:
False
Answers: True

False
 Question 25
2 out of 2 points
Distressed company (e.g., a company at the brink of bankruptcy) is not valued anymore since itâ
s not likely that anybody would be interested in buying its shares.
Selected Answer:
False
Answers: True

False
 Question 26
2 out of 2 points
Projected free cash flow to the firm should be discounted at the firm's cost of equity to find the
firm's total corporate value.
Selected Answer:
False
Answers: True

False
 Question 27
3 out of 3 points
"If estimated ROE at year-end is 20% and dividend payout is 25%, what is the estimated growth
rate?"

Selected Answer:
 
 0.15

Answers: 0.1

 
0.15

0.05

0.5

 Question 28
3 out of 3 points
"Firm X relevant financial data are as follows: Sales - P500,000, Profit from operation P50,000,
Interest expenses P10,000, Taxes P20,000, Stockholders Equity P125,000, Total Liabilities
P275,000. What is the debt to assets ratio? (choose the closest)"

Selected Answer:
 
0.69

Answers: 0.5

0.65

 
0.69

 Question 29
2 out of 2 points
P/E Growth is a reliable valuation reference for companies in the sunset industries.
Selected Answer:
False
Answers: True

False
 Question 30
3 out of 3 points
"Considering the following data for Firm X, what is its P/E Ratio? Expected EPS - P10, Growth rate
2%, Payout Ratio 0.50, Market rate 5%"

Selected Answer:
 
17

Answers:
 
17
 10

25

 Question 31
0 out of 3 points
"Firm X s earnings per share is P4 with growth rate of 5%. Total outstanding shares of stock is
100,000. What is the PEG ratio of Firm X if its shares are trading at P20?"

Selected Answer:
 
100

Answers: 100

 
1

200

 Question 32
2 out of 2 points
Stocks with high P/E Ratio may be consider as growth stocks. As such, itâ s relatively risky and
therefore may be overvalued.
Selected Answer:
True
Answers:
True
False
 Question 33
3 out of 3 points
"Using the following data: P/E ratio 5, Sales P1M, Profit margin 5%, shares outstanding 100,000
shares. What is the price-sales ratio?"

Selected Answer:
 
0.25

Answers: 0.5

0.1

 
0.25

0.3

 Question 34
 2 out of 2 points
It is appropriate to use the constant growth model to estimate a stock's value even if its growth
rate is never expected to become constant.
Selected Answer:
False
Answers: True

False
 Question 35
0 out of 2 points
"If Firms X and Y have the same P/E ratios, then their market-to-book ratios must also be equal."
Selected Answer:
False
Answers:
True
False
 Question 36
3 out of 3 points
"If Firm X s share is currently selling at P80, EPS at P4, ROE of 15%, and Dividend Payout Ratio of
50%, what is Firm X s Price-Earnings Growth (PEG) ratio?"

Selected Answer:
 
267

Answers: 125

 
267

100

80

 Question 37
3 out of 3 points
"Firm X expects EPS for the year to be at P2.50. If P/E Ratio is 10 for companies in Firm X s
industry, what is the estimated price of Firm X s stocks?"

Selected Answer:
 
25

Answers: 4

 
25

0.25
 2.5

 Question 38
2 out of 2 points
Having low payout ratio will likely be priced lower in the market.
Selected Answer:
False
Answers: True

False
 Question 39
3 out of 3 points
"Compute for the number of shares of stocks outstanding if a company has a net income of
P1M, P/E ratio of 20, and EPS of P4."

Selected Answer:
 
250k

Answers:
 
250k

12.5k

500k

150k

 Question 40
3 out of 3 points
"If Firm X s BV/share is P20, P/E ratio is 30, sales of P3M, net income of 250k, and total
outstanding share is 250,000 shares, what is the market to book ratio?"

Selected Answer:
 
1.5

Answers: 2

 
1.5