The two main approaches of equity analysis are: a. The discounted cash flow models and the absolute valuation models. b. The discounted cash flow models and the relative valuation models. c. The rate of return and risk. d. The Price-to-Earnings ratio and the Price-to-Book-Value ratio.

The two main approaches of equity analysis are: a. The discounted cash flow models and the absolute valuation models. b. The discounted cash flow models and the relative valuation models. c. The rate of return and risk. d. The Price-to-Earnings ratio and the Price-to-Book-Value ratio.

Financial Reporting, Financial Statement Analysis and Valuation

8th Edition

ISBN:9781285190907

Author:James M. Wahlen, Stephen P. Baginski, Mark Bradshaw

Publisher:James M. Wahlen, Stephen P. Baginski, Mark Bradshaw

Chapter14: Valuation: Market-based Approach

Section: Chapter Questions

Problem 8QE

See similar textbooks

Related questions

Q: Which of the following ratios would analysts use to value stocks? Select one: a. All of the above b.…

A: Price-to-Earnings Ratio is a ratio that measures the current share price to the companies earning's…

Q: The two main approaches to equity analysis are the relative valuation models and…

A: ANSWER: Option C ;The discounted cash-flow models.

Q: When screening for potential equity investments based on return on equity, to controlrisk, an…

A: Return on equity = Net Income / Shareholder's equity

Q: distinguish between dilutive and antidilutive securities, and describe the implications of each for…

A: Diluted Securities are the financial instruments that can be converted into common stock and may…

Q: In contrast to various discounted cash-flow techniques that attempt to estimate a specific value for…

A: Since you have posted a question with multiple sub-parts, we will solve the first three subparts for…

Q: Differentiate between the terms expected rate of return, required rate of return, and historical…

A: The expected rate of return is the normal rate of return that the speculation can anticipate. By and…

Q: Explain the four main equity valuation ratios where “Price” is the numer-ator. Give one positive AND…

A: solution the four equity valuation ratios where “Price” is the numerator are a)price-earnings (P/E)…

Q: What are the similarities and differences between an overall rate and an equity dividend rate?

A: Answer: Equity is nothing but the difference between asset owning values and liabilities against…

Q: In the simple Keynesian model of income determination, investment is O the buying and selling of…

A: in the Keynesian determination of national income there is mainly to methods which include saving…

Q: A fundamental analyst uses the discounted cashflow method to value firms, and has a short-term…

A: Fundamental Analysis is a technique to value firms on the basis of their fundamentals i.e. their…

Q: Explain why financial analyst are interested in liquidity and solvent ratios

A: Liquidity Ratios help in determining the ability to pay its short-term obligations, whereas Solvency…

Q: Describe each of the following methods for estimating the cost of equity: (a) the CAPM, (b) DCF,and…

A: a) CAPM The full form of CAPM is the Capital asset pricing model. It is used in determining the…

Q: The Capital Asset Pricing Model (CAPM) considers which type of risk in pricing the expected returns…

A: Capital Asset Pricing Model is used for pricing risky securities. It describes the risk and return…

Q: What is the estimated cost of equity using thedividend growth approach?

A: Introduction: Dividend growth model is an approach which assumes dividends are that at a constant…

Q: Describe two different ways one can short equity market volatility

A: An equity market Volatility is the rate at which the price of a stock increases or decreases over a…

Q: What is the difference between book values and market values on the balance sheet?

A: Book Value means the carrying value of the assets as on balance sheet date. However, Market value…

Q: The most popular method that firms use to calculate the cost of equity is ________. Group of answer…

A: The question is based on calculation of cost of equity. Cost of Equity for a firm is the expected…

Q: The required rate of return on equity is the most appropriate discount rate to use when applying a…

A: There are various model which requires different discount rates.

Q: w much is the cost of equity using the capital asset pricing model? b. How much is the cost of…

A: In this we have to determine the cost of equity using capital asset pricing model.

Q: What’s is the Return on Average Equity?

A: The return on average equity (ROAE) is a financial metric that helps to evaluate the profitability…

Q: Define each of the following terms:d. Free cash flow to equity model

A: Free Cash Flow to Equity (FCFE) is a metric used to understand how much cash company has for the…

Q: Describe and compare (i) the Simple Earnings Capitalisation Model, (ii) Burgstahler & Dichev's…

A: (i) Simple earnings capitalization model: Simple earnings capitalization model determines the value…

Q: When using discounted dividend method to estimate stock price, which of the following should be used…

A: When using discounted dividend method to estimate stock price, used required return of equity as…

Q: Explain the difference between expected rate of return, required rate of return, and historical rate…

A: Return Return is also referred to as the money lost or made over a specific period of time. It can…

Q: The appropriate benchmark for the return on equity is: A)the weighted average cost of capital.…

A: Total earning of the firm that is held in the hands of shareholders of the company.

Q: Consider the role of financial statement analysis in an efficient capital market, and review…

A: Security prices represent the aggregate information known by the capital markets about a firm.…

Q: How do the price/earnings (P/E) ratio and the market/book (M/B) ratio provide a feel for the firm's…

A: The financial ratios refer to the ratios that are calculated using the financial data from the…

Q: Is this a right formula? Market Value of Equity = Market capitalization - cash and investment +…

A: Market value of equity and market capitalization are both same and is calculated as number of shares…

Q: Define the term Return on Common Equity? How does it measure profitability?

Q: a. A market value-weighted index Rate of return b. An equally weighted index %

A: Rate of return The profit an investor makes from an investment is called the rate of return. It…

Q: Explain the call-put parity relation and how it is justified

A: “Hi There, Thanks for posting the questions. As per our Q&A guidelines, must be answered only…

Q: Apart from using PE ratio, what is another way of valuing the stock price? if we have the EPS, Share…

A: Price earning ratio is used to value a company's share price. It is calculated by dividing the…

Q: summarize the key features of the markets with the guide questions below. Features Equity Market…

A: The stock market is a location where traders may purchase and sell equities, investors can invest in…

Q: Would you prefer financial ratios based on market or book values? Explain with examples

A: A common example of financial ratio based on market value is the price to earnings ratio which…

Q: List methods used to value equity instruments

A: The three primary equity valuation models are the discounted cash flow (DCF), the cost, and the…

Q: The two main approaches to equity analysis are the relative valuation models and… a. The discounted…

A: Stock valuation is very useful to ascertain whether the stock is trading at premium or discount.…

Q: according to capm the expected return on equity includes a reward for: a. market risk and specific…

A: CAPM model fromula: return of stock = risk free stock return+β×market premium where Beta is the…

Q: How to calculate selling price, markups, markdown, stockturn rate, and return on investment.

A: Financial Ratio: A financial ratio, or bookkeeping proportion, is the general size of two chosen…

Q: Inflation can have significant effects on income statements and balance sheets, and therefore on the…

A: Inflation It arises when average prices in the entire country go up . Value of money is decreased…

Q: What are the differences between the two calculations?

A: The discounted Cash Flow method considers the time value of money that discounts the future cash…

Q: Market value ratios try to answer what question for potential investors? Do financial statements…

A: An investor is any person or other organisation (such as a company or mutual fund) that invests…

Q: Calculate Debt-to-equity Times interest earned Return on Financial leverage

A: Debt to equity=Outsiders' FundsShareholders' Funds 2019 2018 2017 2016 36,683,0008,573,000=4.28…

Q: Ratios that indicate relationships between deposits, borrowed funds and equity in financing loans…

A: Efficiency ratios are those ratios which assess the company's ability to generate revenue using the…

Q: According to the single index model, the factor that drives the returns of all assets is: a. Money.…

A: Single index model :— This model is used to calculate risk and return on the stock. According to…

Q: Stock market analyst. Explain how the relationship between risk and return is maintained using…

A: The risk-return optimization model proposed by Markowitz is as follows: - (a) The risk and return…

Question

The two main approaches of equity analysis are:

a. The discounted cash flow models and the absolute valuation models.

b. The discounted cash flow models and the relative valuation models.

c. The rate of return and risk.

d. The Price-to-Earnings ratio and the Price-to-Book-Value ratio.

Definition Definition Percentage gain or loss from a specific investment over time. The rate of return is the difference between the closing and initial values of an investment divided by the initial value of the investment. The closing value includes any intermediate cash flows such as dividends or interest amounts.

Expert Solution

This question has been solved!

Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.

SEE SOLUTION Check out a sample Q&A here

Step 1

VIEW

Step 2

VIEW

Step by step

Solved in 2 steps

SEE SOLUTION Check out a sample Q&A here

Similar questions

The two main approaches to equity analysis are the relative valuation models and…a. The discounted earnings models.b. The depreciated cash-flow models.c. The discounted cash-flow models.d. The depreciated capital models.
Debt-equity ratio is a sub-part of Select one: a. Liquidity ratio b. Solvency ratio c. Profitability ratio d. Efficiency ratio
This is a generalized framework for analyzing the relationship between risk and return: a. capital asset pricing model b. diversification theory c. capital market line d. arbitrage pricing theory
a. What is debt management ratio? b. What is profitability ratio?
Which are valid methods for finding the cost of equity? Check all that apply: 1. The dividend discount model approach 2. The perpetuity approach 3. The YTM approach 4. The CAPM or SML approach
Which of the following is NOT a profitability ratio? Select one:a. Return on Equityb. Net Profit Marginc. Return on Assetsd. Average Collection Period
Which of the following ratios measures financial leverage? a. The return on assets ratio. b. The inventory turnover ratio. c. The times interest earned ratio. d. The debt to equity ratio.
Which of the following best describes the current ratio? a) Liquidity ratio b) Debt ratio c) Operating performance ratio d) Efficiency ratio
The discount rate used in a net present value analysis is the ________. A. rate of interest earned on a savings account B. rate of inflation C. rate of interest charged for debt financing of an investment D. required rate of return or the hurdle rate
Which of the following is one measure of liquidity? a. Quick ratio b. Profit margin c. Times ineterst earned d. Debt-to-equity rati
Calculate the following profitablity leverage management ratios a. Gross profit margin b. Net profit margin c. Return on investment d. Return on Stockholders' equity Calculate the following market-based ratios: a. Price-to-earnings ratio b. Market price-to-book value ratio
Which one of the following ratios is relevant to assess long-term solvency? A. Current Ratio B. Debt-Service Coverage Ratio C. Return on Equity D. Profit Margin