What to know
Identify the rule, formula, or decision criterion before reading the answer choices. CFA Level I distractors often use the right vocabulary with the wrong condition.
Equity Investments
Equity Valuation practice questions
Equity Valuation is part of CFA Level I Equity Investments. Equity Investments questions test market organization, indexes, valuation inputs, industry analysis, and equity security characteristics. Use this page to review the controlling ideas, then work through 6 questions with answer explanations and common traps.
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Work each item under time pressure, then compare your reasoning with the step-by-step explanation and key takeaway.
Review signal
Missed questions should become scheduled reviews when the error comes from a concept gap, formula setup, or answer-choice trap.
Equity Investments
Equity Valuation
A stock just paid a USD2.40 dividend. Dividends are expected to grow indefinitely at 4.0%, and the required return is 10.0%. Under the Gordon growth model, the intrinsic value is closest to:
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Equity Valuation
A firm just paid a USD1.60 dividend. Dividends are expected to grow by 18% for two years and 5% thereafter. The required return is 11%. The two-stage DDM value is closest to:
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Equity Valuation
A nonconvertible preferred share pays an annual dividend of USD5.50. Investors require 8.5% on this preferred issue. The value is closest to:
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Equity Valuation
A company's board declares a 10% stock dividend. Before the dividend, the share price is USD55 and 20 million shares are outstanding. Ignoring taxes and signaling effects, immediately after the stock dividend the share count and theoretical share price are closest to:
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Equity Valuation
A comparable-company analysis indicates an appropriate EV/EBITDA multiple of 8.2x. The target has EBITDA of USD120 million, debt of USD260 million, cash of USD45 million, minority interest of USD30 million, preferred stock of USD20 million, and 50 million common shares. The implied value per common share is closest to:
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Equity Valuation
An asset-based valuation starts with reported assets of USD900 million. The analyst identifies an unrecorded brand worth USD80 million, PPE undervalued by USD70 million, and inventory overvalued by USD20 million. Liabilities are USD500 million and shares outstanding are 25 million. The asset-based value per share is closest to:
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