82 Review Questions

Chapter 8 Review 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?