Quiz for Chapter 10:

Valuation Principles
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Details:

Total Number of Questions = 22 MCQs + 2 Case

Studies (5 + 4)
Total Marks for Quiz = 22 + 9 = 31
This is the practice questions with 1 marks each
This quiz has no negative marking and no time
limit.

Disclaimer:

1. In the real/actual exam there will be 100

questions with 1 mark each from all the chapters
weightage wise.The structure of the exam is as
follows:
i. Multiple Choice Questions [ 92 Questions of 1
mark each ] which results in 92 marks &
ii. Case-based Questions [ 2 cases (each case with
4 questions of 1 marks each )] which results in 8
marks.

2. In the real/actual exam there will be a negative

marking of 25% of the marks assigned to the

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 question for each wrong answer which is 0.25 mark
per wrong answer. So please keep that in mind !!

3. In the real/actual exam the questions are not

mandatory to solve and you can skip the questions.
There is no negative marking for un-attempted
questions.

4. The time duration of the real/actual exam is 2

hours and the passing marks is 60.

5. This quiz is just for practice purpose and it

doesn't hold the fact that the same questions
appear in the real examination.

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 1 point
ABC Ltd has a profit margin of 6.9% on
sales of Rs.2,42,00,000. Assume the firm
has debt of Rs.95,00,000 and total assets
of Rs.1,61,00,000. What is the firm’s ROE?

20.2%

25.3%

19.1%

22.7%

1 point
ABC Ltd has a profit margin of 7.5% on
sales of Rs.1,80,00,000. Assume the firm
has debt of Rs.85,00,000 and total assets
of Rs.1,30,00,000. What is the firm's
Return on Assets (ROA)?

11.5%

8.2%

12.8%

10.4%

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 1 point
When using the Free Cash Flow to the
Firm (FCFF) method, which discount rate
is employed to determine the value of a
business (Enterprise Value) ?

Market Rate on Debt

Return on Equity

Weighted Average Cost of Capital (WACC)

Risk-Free Rate

1 point
When using the Free Cash Flow to Equity
(FCFE) method, which discount rate is
employed to determine the equity value
of a business?

Return on Equity

Cost of Equity

Risk-Free Rate

Market Rate on Debt

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 1 point
ABC Ltd has an income of Rs.10,50,000,
and its share price is Rs. 20. The
company has 2,50,000 shares. Calculate
the price-earnings ratio (P/E ratio).

5.2

4.75

6.8

3.5

1 point
ABC Ltd has a book value of Rs.
15,00,000 and its share price is Rs. 25.
The company has 1,00,000 shares.
Calculate the Price to Book Value ratio
(P/B ratio).

1.67

1.25

2.0

1.8

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 1 point
XYZ Ltd has total sales of Rs. 30,00,000
and its share price is Rs. 18. The
company has 2,00,000 shares. Calculate
the Price to Sales ratio (P/S ratio).

1.5

0.9

1.2

0.6

1 point
Analysts can have a different valuation
figures using discounting cash flow
valuation method.

False

True

1 point
Cash flows before any payments are
made on the debt outstanding is known
as Free cash flows of the firm (FCFF).

True

False

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 1 point
What are the components of Capital
Asset Pricing Model (CAPM) ?

Return expected on stock market portfolio

All of them

Company beta

Risk free rate of return

1 point
The Earnings Multiplier model is
considered more reliable than the
Discounted Cash Flow (DCF) model in
volatile economic conditions.

True

False

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 1 point
Abby Corp reports that its assets are
valued at Rs.250,00,000, its liabilities are
Rs.80,00,000, and it has issued 8,00,000
shares of stock. What is the book value
for a share of abby Stock?

Rs. 21.25

Rs. 25.25

Rs. 30

Rs. 37.5

1 point
If interest rates in the economy rise, the
price of the bond would ________

Fall

Rise

1 point
In the discounted cash flow model, only
cash inflows contribute to the valuation
of a business, and outflows are excluded.

True

False

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 1 point
The formula for WACC is ___________

[k(e) x w(e)] + [K(d) x (1-T) /W(d)]

[k(e) x w(e)] + [K(d) x (1-T) x W(d)]

[k(e) x w(e)] + [K(d) x (1+T) x W(d)]

[k(e) x (1-T) x w(e)] + [K(d) x W(d)]

1 point
There are two companies x, y with P/E
ratios of 25 and 18. But they have
different growth potentials of 20% and
12% for next few years. Which of the
companies is cheaper on the basis of
PEG ratio?

Both companies are equally cheap

Company Y

Company X

It cannot be determined

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 1 point
Free cash flows for equity (FCFE) is
computed as __________

EBIT + Tax + Depreciation & Non-cash

charges – working capital + capital
expenditure incurred

EBIT – Tax + Depreciation & Non-cash

charges (+,-) working capital – capital
expenditure incurred- Interest + Net
borrowing

EBIT – Tax + Depreciation & Non-cash

charges + working capital + capital
expenditure incurred

EBIT – Tax + Depreciation & Non-cash

charges (+,-) working capital – capital
expenditure incurred

1 point
An investor purchased 600 shares of a
company for Rs. 36,000. The face value
of these shares is Rs. 10. Calculate the
dividend yield on the invested amount if
the company declares a 150% dividend.

12.5%

25%

16%

20%

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 1 point
The market valuation of Company PQR is
Rs. 80,000. The total obligations on the
balance sheet are Rs. 20,000, and the
available cash and equivalents are Rs.
12,000. Calculate the Firm's Valuation.

Rs. 72,000

Rs. 88,000

Rs. 92,000

Rs. 108,000

1 point
The Sustainable Growth Rate (SGR) is a
measure of a company's ability to grow
its sales, earnings, and dividends at a
consistent rate without having to
increase debt or equity. Which of the
following is used in the calculation of
SGR?

Dividend Payout Ratio

Earnings Before Interest and Taxes (EBIT)

Retention Ratio

Return on Investment (ROI)

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 1 point
Price to book value ratio is calculated
using which of the following equation?

Price to book value ratio = Market price per

share / Book value per share

Price to book value ratio = Market

capitalization / Book value of equity or net-
worth

Both a & b

Either a or b

1 point
If the P/BV ratio is 5, the number of
shares is 100,000, total equity is 20 Lakh,
and the dividend is 2 with a dividend
payout of 50%, what is the P/E ratio?

20

25

15

30

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 Case Study 1:

1 point
Case Study 1:

1) PE ratio for Company B is higher than

that of Company A. Which of the
following are plausible reasons to justify
such higher PE ratio of Company B?

Company B has high financial leverage which

justifies higher PE ratio

EPS growth rate for Company B is higher than

EPS growth rate for Company A and

None of the above statements are true

Company B is relative smaller company, and

the smaller base justifies higher PE ratio

higher growth justifies higher PE ratio

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 1 point
Case Study 1:

2) Which of these two companies appear

cheaper based on the PEG ratio? Use the
expected growth rate for 2XX9 for the
calculation.

Company A is cheaper as its PEG ratio is

1.05x compared to 0.91x for Company B

Company B is cheaper as its PEG ratio is

0.91x compared to 1.05x for Company A

Company A is cheaper as its PEG ratio is

2.91x compared to 1.07x for Company B

Company B is cheaper as its PEG ratio is

1.07x compared to 2.91x for Company A

1 point
Case Study 1:

3) Which of the following is closest to the

market value of equity (i.e., market
capitalization) of Company A?

Rs.3,046 lakhs

Rs.30,000 lakhs

42,600 lakhs

None of the above

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 1 point
Case Study 1:

4) The market cap of Company B based

on its last traded price is Rs.36,000
crores. Which of the following is closest
to its EV/EBITDA based on forecast for
2XX9?

7.17x

9.54x

8.14x

9.74x

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 1 point
Case Study 1:

5) The average PE ratio of peers in the

industry is 16x based on 2XX9 earnings.
The analyst believes that Company B
deserves to trade at 20% premium
compared to its peers because of its low
risk and high growth potential. Which of
the following is closest to the fair price of
its share?

Rs.643.6

Rs.428.7

Rs.617.8

Rs.514.8

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 Case Study 2:

1 point
Case Study 2:

1) The AGM of the company approved

dividend for the recently concluded year
and it was just paid. If the dividend is
expected to grow at a constant rate of
7%, which of the following is closest to
the fair price of the share, assuming cost
of equity of 14%?

Rs.208

Rs.133

Rs.204

Rs.192

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 1 point
Case Study 2:

2) Based on the following information,

calculate the cost of equity of the
company? Risk free rate: 5% Expected
return from the market: 9% Beta of the
company: 1.3

10.8%

8.20%

16.0%

10.2%

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 1 point
Case Study 2:

3) The fair value of total assets of the

company is expected to be Rs.10,000
lakhs while the liabilities are worth the
same as shown in the balance sheet. If
the cost of equity is 10% and cost of debt
(net of tax) is 7%, which of the following
is closest to the weighted average cost
of capital?

11.0%

8.0%

12.5%

9.5%

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 1 point
Case Study 2:

4) The FCFF of the company for next year

is estimated at 2,400 lakhs. It is expected
to grow at 10% in the year after that and
is expected to grow at 4% perpetually
post that. If the weighted average capital
is 12.0%, which of the following is closest
to the fair value of the firm (Enterprise
value)?

Rs.43,333 lakhs

Rs.40,700 lakhs

Rs.34,835 lakhs

Rs.36,516 lakhs

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