MBA PREP CFIN EXAM 2024 QUESTIONS WITH 100% CORRECT SOLUTIONS
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MBA PREP CFIN
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MBA PREP CFIN
MBA PREP CFIN EXAM 2024 QUESTIONS WITH 100% CORRECT SOLUTIONS
Which of the following statements are true about relevant cash flow valuations - Answer-they consider the target to be a going concern, they allow for the obligations to debt holders, no two investments can be analyzed using the same h...
MBA PREP CFIN EXAM 2024
QUESTIONS WITH 100% CORRECT
SOLUTIONS
Which of the following statements are true about relevant cash flow valuations -
Answer-they consider the target to be a going concern, they allow for the obligations to
debt holders, no two investments can be analyzed using the same hurdle rate
In order to use a cash flow in perpetuity as a residual value for an asset, it must be
reasonably assumed that the cash flows from that asset have leveled off - Answer-True
From the acquirer's perspective, the absolute maximum price that should ever be paid
for a target is - Answer-the PV of the target's enhanced cash flows, discounted by the
target's appropriate cost of capital
Mergers are more difficult to evaluate than single-asset investments because - Answer-
there are more valuation methods, there are synergies and purchase price negotiations
in mergers
Valuation determines whether a merger is feasible; tax consequences and control
considerations help shape the resultant firm's legal structure - Answer-True
The following should not influence managers to select marginal acquisitions - Answer-
Residual Values
From an acquirer's perspective, the absolute extremes of a negotiating range in an
acquisition are defined by - Answer-the justifiable price and the present value of the
target's enhanced cash flows
Relevant cash-flow valuations are determined through the use of the target's weighted
average cost of capital - Answer-False
It is impossible for the acquisition price of a target firm ever to fall below book value -
Answer-False
The following could be reasonable estimates of a firm's future terminal value - Answer-
book value, liquidation or salvage value, cash flow in perpetuity based on the flow in the
final years of the evaluation horizon
When a cash flow in perpetuity is calculated - Answer-
, The utility of sensitivity analysis is not nearly as great in merger valuations as it is in
capital budgeting - Answer-False
Which of the following is the most likely reason that a merger will not be as financially
rewarding as initially projected - Answer-The projected cash flow enhancements will not
materialize
In many ways, managers can consider the opinions of capital markets and the firm's
shareholders to be identical - Answer-True
Every financing decision involves which consideration? - Answer-How much, what the
target capitalization is, what the dividend policy is
A FRICTO analysis enables prudent managers to assess investment decisions -
Answer-False
Flexibility issues are those which - Answer-deal with a company's financing reserves,
impact the debt capacity that a firm should maintain
Income issues deal with - Answer-the impact of a financial alternative on the income
statement, factors which may affect shareholder income, income dilution
Risk issues are those which - Answer-involve recurrent developments which may
impact a firm's ability to meet contractual agreements
The issue of control is not important - Answer-if debt is issued
Timing issues involve - Answer-The cost of the alternative forms of capital, the
sequencing of alternatives, once funding amounts are known, marriage of both
Other issues may cause managers to assign more importance to one FRICTO element
than others - Answer-True
Value can be created through financing by choosing the least expensive alternative -
Answer-True
Which of the following statements is true about EBIT analysis? - Answer-Only the
incremental effects of a financing decision on EBIT are considered, common stock, new
investments and preferred dividends are important variables in the EBIT analysis
FRICTO analysis can point out poor investments - Answer-False
The flexibility step in a FRICTO analysis allows managers to consider financing
alternative - Answer-in terms of predicted funding needs that would be required in rare,
firm threatening situations
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