Question 1

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

Accepted Answer

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

Question 2

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 3

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 4

________________ 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 5

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 6

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 7

Net cash flow from operations ________________ dividends equals_______________________

Accepted Answer

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

Question 8

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 9

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 10

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 11

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 12

________________________________________ 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 13

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 14

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 15

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, as they affect the entire market or economy and are therefore beyond the control of individual firms. In contrast, the sustainability of a firm's strategy, its ability to generate revenue growth, and its ability to control expenses are all examples of nonsystematic risk factors, as they are specific to the individual firm and can be influenced by actions or decisions taken by the firm itself.

Question 16

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 17

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

An equity security with systematic risk equal to the average amount of systematic risk of all equity securities in the market has a beta equal to one, which is the average beta of the market. This means it has an expected rate of return that is equal to the market's expected rate of return. Therefore, both options A and B are correct. However, this equity security still gives insight into the risk premium of stock as it can be used as a baseline for comparison with other securities that have different levels of systematic risk.

Question 18

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 19

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 20

If a firm's stock returns co-vary identically with returns to a market-wide 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 co-vary identically with returns to a market-wide portfolio, then its market beta is equal to one. Beta is a measure of the stock's volatility in relation to the market, where a beta of one suggests that the stock moves in line with the market. So, if the co-variance is identical, it means that the stock's movements are in the same proportion as the market, which leads to a beta of one.

Quiz 12: Valuation: Cash-Flow-Based Approaches

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

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

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.

________________ 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.

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

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.

Net cash flow from operations dividends equals_______

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 ____________________.

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.

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

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.

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.

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

Nonsystematic risk factors would include all of the following except:

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

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

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

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 ______________________________________________________________________.

If a firm's stock returns co-vary identically with returns to a market-wide portfolio,then its market beta from such a regression is: