Question 1

If the objective is to value operating assets net of operating liabilities of a firm then the appropriate free cash flow measure to be used is ______________________________________________________________________.

Accepted Answer

The answer of If the objective is to value operating...

Question 2

If a firm generates a rate of return on __________________________________________________ equal to the discount rate used by the investor then it does not matter if an analyst uses cash flows to the investor or cash flows to the firm.

Accepted Answer

The answer of If a firm generates a rate of...

Question 3

The analyst can use expectations of the dividends to be paid to the investor or the free cash
flows to be generated by the firm (that will ultimately be paid to the investor)as equivalent
approaches to measure the ____________________ expected payoffs to shareholders.

Accepted Answer

The answer of The analyst can use expectations of the...

Question 4

Even in relatively efficient securities markets,____________________ is observable but ____________________ is not; therefore,____________________ must be estimated.

Accepted Answer

The answer of Even in relatively efficient securities markets,____________________ is...

Question 5

What three elements are needed to value a resource when using cash flows?

Accepted Answer

The answer of What three elements are needed to value...

Question 6

The risk-adjusted discount rate used to compute the present value of all the projected free cash flows for common equity shareholders equals the _______________________________________________________.

Accepted Answer

The answer of The risk-adjusted discount rate used to compute...

Question 7

Free cash flows for common equity shareholders are the cash flows specifically available to the common shareholders after making all capital expenditures,_____________________________________________ and ____________________________________________________________.
debt service payments to lenders,paying dividends to preferred shareholders or
paying dividends to preferred shareholders,debt service payments to lenders

Accepted Answer

The answer of Free cash flows for common equity shareholders...

Question 8

If cash flow projections include the effect of inflation then the discount rate used should be a ____________________ rate.

Accepted Answer

The answer of If cash flow projections include the effect...

Question 9

Provide the rationale for using expected free cash flow in valuation.

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The answer of Provide the rationale for using expected free...

Question 10

Steady-state growth in ___________________________________ could be driven by long-run expectations for growth attributable to economy-wide inflation,general economic productivity,the population,or long-run growth in industry's sales.
ree cash flows

Accepted Answer

The answer of Steady-state growth in ___________________________________ could be driven...

Question 11

One disadvantage of the free cash flow valuation method is that many times the ______________________________ dominates the total value.

Accepted Answer

The answer of One disadvantage of the free cash flow...

Question 12

An equity security with systematic risk equal to the average amount of systematic risk of all equity securities in the market

Accepted Answer

An equity security with systematic risk equal to the average amount of systematic risk of all equity securities in the market has a market beta equal to one and should expect to earn the same rate of return as the average stock in the market portfolio. Therefore, both options A and B are correct. Option C may be incorrect because the systematic risk of a stock can provide some indication of its risk premium.

Question 13

For most firms,______________________________ include cash and short-term investment securities,accounts receivable,inventory,property,plant and equipment,intangible assets and investments in affiliated companies.

Accepted Answer

The answer of For most firms,______________________________ include cash and short-term...

Question 14

The forecasting and valuation process is particularly difficult for ______________________________ when the near term free cash flows tend to be negative.

Accepted Answer

The answer of The forecasting and valuation process is particularly...

Question 15

The cash-flow-based valuation approach measures and values the cash flows that are "free" to be ________________________________________ unencumbered by necessary reinvestments in operating assets or required payments to debt holders.

Accepted Answer

The answer of The cash-flow-based valuation approach measures and values...

Question 16

Changes in general price levels cause the ______________________________ of the monetary unit to change over time.

Accepted Answer

The answer of Changes in general price levels cause the...

Question 17

____________________ is an estimate of systematic risk based on the degree of covariation between a firm's stock returns and an index of stock returns for all firms in the market.

Accepted Answer

The answer of ____________________ is an estimate of systematic risk...

Question 18

________________________________________ typically include accounts payable,accrued expenses,accrued taxes,deferred taxes,pension obligations and other retirement benefit obligations.

Accepted Answer

The answer of ________________________________________ typically include accounts payable,accrued expenses,accrued taxes,deferred...

Question 19

Free cash flow from operations equals cash flow from operations adjusted for net interest after tax and adjusted for __________________________________________________.

Accepted Answer

The answer of Free cash flow from operations equals cash...

Question 20

The present value of future free cash flows valuation method focuses on free cash flows,a base that economists argue has more economic meaning than ____________________.

Accepted Answer

The answer of The present value of future free cash...

Quiz 12: Valuation: Cash-Flow-Based Approaches