Question 1

Free cash flow is calculated as net cash provided by operating activities less:

Accepted Answer

A)  dividends. 
B)  capital expenditures and depreciation. 
C)  capital expenditures. 
D)  capital expenditures and dividends.

Question 2

Nonsystematic risk factors would include all of the following except :

Accepted Answer

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

Question 3

Currently, financial reporting does not take into account changes in prices, either at the general level or at the specific level. Many analysts believe that not taking price changes into account distorts the meaningfulness of financial reports. How do changing prices affect financial reports?

Accepted Answer

The answer of Currently, financial reporting does not take into...

Question 4

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 5

Steady-state growth in free cash flows could be driven by long-run expectations for growth attributable to:

Accepted Answer

A)  interest rates 
B)  national exports 
C)  general economic productivity 
D)  balance of payments

Question 6

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:

Accepted Answer

A)  equal to zero. 
B)  equal to one. 
C)  less than one. 
D)  greater than one.

Question 7

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 8

Starting with net cash flow from operations and adjusting for capital expenditures and dividends equals:

Accepted Answer

A)  free cash flows for all debt and equity capital stakeholders. 
B)  free cash flow. 
C)  free cash flows to common equity capital shareholders. 
D)  free cash flow from operations.

Question 9

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 10

What is Houston's free cash flow for common equity holders for year 2012?

Accepted Answer

A)  $564 
B)  $399 
C)  $324 
D)  $412

Question 11

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 12

When calculating free cash flows to common equity shareholders, financing activities do not include:

Accepted Answer

A)  Debt cash flows 
B)  Adjustments for capital expenditures 
C)  Adjustments for Preferred stock cash flows 
D)  Financial asset cash flows

Exam 12: Valuation: Cash-Flow Based Approaches