# Econ 163 midterm 2 CH. 13, 15, and 16

version from 2016-04-02 21:24

## Section 1

________ is the net worth (assets minus liabilities of a firm)Book Value
______ is the net amount that could be realized by selling all the assets of the firm, liquidation value
______ the cost to replace a firm's assets minus its liabilities replacement value
_____ is the ratio of the market value of the firm and the replacement value of the firm. _____ = (market value)/ (replacement value)Tobins q
Suppose you are interested in purchasing a share of chevron stock which currently sells at \$80 (P0=\$80). The stock has an expected dividend payment of 4\$ (d1=\$4 ) and you expect the price of the stock to be \$85(p1=\$85). Calculate the holding period return for this investment. (hint: HPR= ([P1-P0]+d1)/P0)11.25%
This expected return estimates the return an investor would expect to receive given the risk measured by beta (B). This is also known as the _____________ (K). If the actual return exceeds the ______ then the stock is considered underpriced and will be an attractive investment. required rate of return (K)
______ is the maximum amount you would be willing to pay today for some amount in the futurePresent Value
_______ is the present value of all payments to the investor from holding the stock. Intrinsic Value
________ states that the intrinsic value of a firm is equal to present value of expected future dividends. (DDM) Dividend discount model
________ is the proportion of the firms earnings that are paid out as dividends. Dividend payout ratio
_________ is the proportion of the firm's earnings that are reinvesting (not paid out as dividends).Plowback Ratio (earnings retention ratio)
Key point: If a firm decides to reduce its current dividends and reinvest some of its earnings (increase the plowback ratio) the price of the stock will ______.increase