Question

Which one of the following factors is not considered calculating a firm’s PEG ratio?

1. Projected growth rate of the value indicator (e.g., earnings)
2. Ratio of market price to value indicator (e.g., P/E)
3. Share exchange ratio
4. Historical growth rate of the value indicator
5. None of the above

2.         In determining the purchase price for an acquisition target, which one of the following valuation methods does not require the addition of a purchase price premium?

1. Discounted cash flow method
2. Comparable companies’ method
3. Comparable industries’ method
4. Recent transactions’ method
5. A & B only

3.           Limitations in applying the comparable companies’ method of valuation include which of the following?

              a.            Finding truly comparable companies is difficult

              b.            The use of market-based methods can result in significant under- or overvaluation during periods     

                              of declining or rising stock markets

c.         Market-based methods can be manipulated easily, because the methods do not require a clear statement of assumptions with respect to risk, growth, or the timing or magnitude of future earnings and cash flows.

              d.            A, B, & C

              e.             A & B only

4.           Which of the following represent options available to managers in making investment decisions?

1. Delay initial investment
2. Accelerate cumulative investment
3. Abandon the investment at a later date
4. A & B only
5. A, B, & C

5.           Which one of the following is not a commonly used method of valuing target firms?

1. Discounted cash flow
2. Comparable companies method
3. Recent transactions method
4. Asset oriented method
5. Share exchange ratio method

Answer 1

1]

PEG ratio = PE ratio / earnings growth rate

Earnings growth rate can be either the historical growth rate, or the projected growth rate

The answer is (c) - Share exchange ratio. This is not considered in calculating a firm’s PEG ratio