FIN 340 Exam 2 UPDATED ACTUAL
Exam Questions and CORRECT Answers
value investing P/E - CORRECT ANSWER - Low P/E is good, want undervalued firms
Growth investing P/E - CORRECT ANSWER - High P/E is good, market signals future
growth
dividend payout ratio - CORRECT ANSWER - the percentage of earnings paid out as
dividends
as dividend payout ratio goes, up what happens to P/E - CORRECT ANSWER - increases
as risk goes up what happens to P/E - CORRECT ANSWER - decreases
as growth goes up what happens to P/E - CORRECT ANSWER - Increases
benefit and drawback of EV multiples - CORRECT ANSWER - Less affected by capital
structure, harder to find forecasts
how does higher risk (higher WACC) affect EV/EBITDA - CORRECT ANSWER - Lower
EV/EBITDA
pros of multiples - CORRECT ANSWER - Simple, uses market forecasts, harder to
manipulate
cons of multiples - CORRECT ANSWER - firms must be comparable, relies on efficient
market, difficult to do sensitivity analysis
Exam Questions and CORRECT Answers
value investing P/E - CORRECT ANSWER - Low P/E is good, want undervalued firms
Growth investing P/E - CORRECT ANSWER - High P/E is good, market signals future
growth
dividend payout ratio - CORRECT ANSWER - the percentage of earnings paid out as
dividends
as dividend payout ratio goes, up what happens to P/E - CORRECT ANSWER - increases
as risk goes up what happens to P/E - CORRECT ANSWER - decreases
as growth goes up what happens to P/E - CORRECT ANSWER - Increases
benefit and drawback of EV multiples - CORRECT ANSWER - Less affected by capital
structure, harder to find forecasts
how does higher risk (higher WACC) affect EV/EBITDA - CORRECT ANSWER - Lower
EV/EBITDA
pros of multiples - CORRECT ANSWER - Simple, uses market forecasts, harder to
manipulate
cons of multiples - CORRECT ANSWER - firms must be comparable, relies on efficient
market, difficult to do sensitivity analysis
