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Principles of Finance

Review Questions

Principles of FinanceReview Questions

1 .
Briefly discuss one of the primary benefits of using comparative P/E ratios.
2 .
Name an important characteristic of companies for which the price-to-book (P/B) ratio does not work well.
3 .
Briefly describe the main type of scenario in which the two-stage DDM approach might be used to value a firm and its stock.
4 .
Briefly describe a major shortcoming of the zero growth DDM model.
5 .
Briefly describe the required inputs for the discounted cash flow (DCF) model.
6 .
Briefly describe preferred stock and some of its ownership advantages compared to common stock.
7 .
Briefly explain what is meant by the terms cumulative and noncumulative as they relate to preferred stocks.
8 .
What were SuperDOT and SOES, and what were they designed to do?
9 .
What are operational efficiency and informational efficiency, and how do they differ in terms of trading markets?
10 .
What is meant by informational efficiency, and how does it affect the price of a stock?
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