Question 1

LA Sunglasses operates retail sunglass kiosks in shopping malls. Below is information related to the company:
  Using a five-year forecast horizon compute the sum of the present value of free cash flows accruing to common equity holders for years 2007 to 2011.

Accepted Answer

The answer of LA Sunglasses operates retail sunglass kiosks in...

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...

Question 3

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 4

Operating assets include all of the following except

Accepted Answer

A)  accounts receivable 
B)  property, plant and equipment 
C)  intangible assets 
D)  Property held for sale

Question 5

LA Sunglasses operates retail sunglass kiosks in shopping malls. Below is information related to the company:
  Using the above information and assuming that steady-state growth in year 2012 and beyond will be 4% calculate LA Sunglasses' current value per share.

Accepted Answer

The answer of LA Sunglasses operates retail sunglass kiosks in...

Question 6

If an analyst wants to value a potential investment in the net operating assets of a division of another firm the analyst should discount the projected free cash flows at the

Accepted Answer

A)  Cost of debt capital 
B)  cost of equity capital 
C)  weighted average cost of capital 
D)  risk free rate

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

The following information pertains to Dallas, Inc. a manufacturer of Cowboy boots:  What is Dallas' free cash flow for all debt and equity holders for year 2007?

Accepted Answer

A)  $564 
B)  $399 
C)  $324 
D)  $202

Question 9

WACC
An analyst wants to value the sum of the debt and equity capital of the firm and is provided with the following information:
  An analyst wants to value the sum of the debt and equity capital of Bridgetron, compute the relevant cost of capital that should be used.

Accepted Answer

The answer of WACC
An analyst wants to value the sum...

Question 10

Below is information from the statement of cash flow and income statement for Graham Products, Inc. for 2002 and 2001. Marketable securities represent investments of excess cash that Graham Products does not need for operations. Graham Products' tax rate is 35%.
  Using the above information calculate the amount of free cash flows for common equity shareholders for Graham Products for year 2002 and 2001.

Accepted Answer

The answer of Below is information from the statement of...

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

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 13

Operating liabilities include all of the following except

Accepted Answer

A)  accounts payable 
B)  pension obligations 
C)  accrued taxes 
D)  long-term debt

Question 14

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 15

Continuing free cash flows represent

Accepted Answer

A)  the cash flows remaining after deducting cash flows attributable to debt holders 
B)  the free cash flows after the point at which the firm has settled into a long-run steady-state growth rate. 
C)  all sustainable free cash flows 
D)  all after-tax free cash flows

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

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 18

If an analyst wants to value a potential investment in the net operating assets of a division of another firm the relevant cash flows the analyst should use are

Accepted Answer

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

Question 19

If an analyst wants to value a potential investment in the common stock equity of a firm the analyst should discount the projected free cash flows at the

Accepted Answer

A)  required return on equity capital 
B)  weighted average cost of capital 
C)  risk free rate 
D)  market risk premium

Question 20

Which of the following is not a problem with using a dividend-based valuation formula

Accepted Answer

A)  dividends are arbitrarily established 
B)  dividends represent a transfer of wealth to shareholders 
C)  some firms do not pay a regular periodic dividend 
D)  it is a challenge to forecast the final liquidating dividend

Exam 12: Valuation: Cash-Flow-Based Approaches

LA Sunglasses operates retail sunglass kiosks in shopping malls. Below is information related to the company: Using a five-year forecast horizon compute the sum of the present value of free cash flows accruing to common equity holders for years 2007 to 2011.