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

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2016-04-02 21:24

## Section 1

Question | Answer |
---|---|

________ 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 future | Present 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 |