Question 1

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 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

Net cash flow from operations -________________ -dividends equals_______________________

Accepted Answer

The answer of Net cash flow from operations -________________ -dividends...

Question 4

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 5

An equity security with systematic risk equal to the average amount of systematic risk of all equity securities in the market
A) has a market beta equal to one.
B) should expect to earn the same rate of return as the average stock in the market portfolio.
C) gives no insight into the risk premium of stock.
D) Both a and b are correct.

Accepted Answer

If an equity security has systematic risk equal to the average amount of systematic risk of all equity securities in the market, it means that its market beta is one, and it should expect to earn the same rate of return as the average stock in the market portfolio. Therefore, both answers a and b are correct. This equity security's risk premium cannot be determined based on this information, so answer c is incorrect.

Question 6

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.

Accepted Answer

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

Question 7

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 8

________________ 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 9

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 10

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...

Question 11

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 12

Free cash flows for common equity shareholders are the cash flows specifically available to the common shareholders after making all capital expenditures,_____________________________________________ and ____________________________________________________________.

Accepted Answer

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

Question 13

Changes in general price levels due to inflation or deflation cause the ______________________________ of the monetary unit to increase or decrease ______________

Accepted Answer

The answer of Changes in general price levels due to...

Question 14

One advantage of the free cash flow valuation method is cash is the medium of exchange and therefore is a fundamental source of ________________________

Accepted Answer

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

Question 15

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 16

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 17

If a firm's stock returns covary identically with returns to a marketwide portfolio,then its market beta from such a regression is:
A) equal to zero.
B) equal to one.
C) less than one.
D) greater than one.

Accepted Answer

If a firm's stock returns covary identically with returns to a marketwide portfolio, then its market beta would be equal to one. Beta measures the systematic risk of an asset in relation to the market. A beta of one indicates that the asset's returns move in line with the market, meaning it has the same level of systematic risk as the market portfolio.

Question 18

Nonsystematic risk factors would include all of the following except:
A) the sustainability of the firm's strategy
B) the firm's ability to generate revenue growth
C) the firm's ability to control expenses
D) unemployment levels

Accepted Answer

Unemployment levels are an example of systematic risk factors, which are macroeconomic factors affecting the entire market or a large segment of it. The other options listed (sustainability of the firm's strategy, ability to generate revenue growth, and ability to control expenses) are examples of non-systematic risk factors specific to the individual firm.

Question 19

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 20

________________________________________ 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...

Quiz 12: Valuation: Cash-Flow-Based Approaches

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

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.

Net cash flow from operations - -dividends equals_______

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 ______________________________________________________________________.

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

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.

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.

________________ 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.

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.

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 ____________________.

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

Free cash flows for common equity shareholders are the cash flows specifically available to the common shareholders after making all capital expenditures,_ and ________________.

Changes in general price levels due to inflation or deflation cause the ________________ of the monetary unit to increase or decrease

One advantage of the free cash flow valuation method is cash is the medium of exchange and therefore is a fundamental source of ________________________

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

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

If a firm's stock returns covary identically with returns to a marketwide portfolio,then its market beta from such a regression is:

Nonsystematic risk factors would include all of the following except:

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

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