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ABV Ch 4 Exam Questions & Answers 2024/2025

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ABV Ch 4 Exam Questions & Answers 2024/2025 What is a principle underlying the income approach? a. economic utility b. future benefits c. optimal benefits d. non-efficient markets - ANSWERSb. future benefits Capitalization (capitalization cash flow method) - ANSWERSSingle period valu...

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  • September 9, 2024
  • 8
  • 2024/2025
  • Exam (elaborations)
  • Questions & answers

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  • abv ch 4 exam questions answers

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  • ABV Ch 4
  • ABV Ch 4

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ABV Ch 4 Exam Questions & Answers
2024/2025

What is a principle underlying the income approach?



a. economic utility

b. future benefits

c. optimal benefits

d. non-efficient markets - ANSWERSb. future benefits



Capitalization (capitalization cash flow method) - ANSWERSSingle period valuation model that converts a
benefits stream into value by dividing the cash flow by a rate of return adjusted for growth.



Which earnings parameter is appropriate to use as WACC as a proxy for a discount rate in a DCF? -
ANSWERSNet Cash Flows to Invested Capital



or



FCFF (free cash flows to the firm), as Damodaran likes to call it.



The DCF method is most often used when



a. valuing very small companies

b. company's performance is not currently at a stabilized level

c. company's future performance is expected to follow the past

d. you need to create value in a company that is not currently earning positive income - ANSWERSb.
company's performance is not currently at a stabilized level

, How is CCF and DCF not the same? - ANSWERSNumber of periods used



The direct equity model of capitalization of cash flow method always includes:



a. 5-year weighted average CF

b. WACC

c. terminal year growth rate

d. single period of expected cash flow - ANSWERSd. single period of expected cash flow



When creating or using forecasts, how far in the future should they go?



a. until there are sustainable future levels of CF

b. 2 years

c. 5 years

d. 10 years - ANSWERSa. until there are sustainable future levels of CF



The Gordon Growth Model:



a. is a multi-period model

b. uses EBITDA as a numerator

c. requires an estimate of next year's dividends, cash flow, or earnings

d. uses a discount rate as a denominator - ANSWERSc. requires an estimate of next year's dividends, cash
flows, or earnings



When using a DCF model, the terminal year value as calculated by the Gordon Growth Model is often:



a. the most significant component of the total value

b. calculated as asset liquidation value

c. calculated by using exit multiples

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