Corporate Finance ACTUAL Questions and CORRECT Answers
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Course
Corporate Finance
Institution
Corporate Finance
Corporate Finance ACTUAL Questions
and CORRECT Answers
Dividend Discount Model - CORRECT ANSWER- Discounted cash-flow model which
states that today's stock price equals the present value of all expected future dividends
Constant Growth Model (infinite) - CORRECT ANSWER- a widely cited dividen...
Corporate Finance ACTUAL Questions
and CORRECT Answers
Dividend Discount Model - CORRECT ANSWER✔✔- Discounted cash-flow model which
states that today's stock price equals the present value of all expected future dividends
Constant Growth Model (infinite) - CORRECT ANSWER✔✔- a widely cited dividend
valuation approach that assumes that dividends will grow at a constant rate, but a rate that is
less than the required return
Constant Growth Model (finite) - CORRECT ANSWER✔✔- Should include terminal value
(what you sell it for) @ end
To do so you calculate the non-constant growth rate until horizon date T...then calculate the
terminal value as you would in an infinite CGM w/ denominator raised to power T
expected rate of return (constant growth model) - CORRECT ANSWER✔✔- The rate of
return expected to be realized from an investment; the weighted average of the probability
distribution of possible results
capital gains yield - CORRECT ANSWER✔✔- the dividend growth rate, or the rate at which
the value of an investment grows
Dividend Yield - CORRECT ANSWER✔✔- a stock's expected cash dividend divided by its
current price
terminal value (Horizon Value) - CORRECT ANSWER✔✔- the sale price at the end of the
expected holding period
Free Cash Flow Valuation Model - CORRECT ANSWER✔✔- A model that determines the
value of an entire company as the present value of its expected free cash flows discounted at
the firm's weighted average cost of capital, which is its expected average future cost of funds
over the long run.
, FCF Constant Growth Model - CORRECT ANSWER✔✔- A variation of the constant growth
model
Market Multiple Analysis - CORRECT ANSWER✔✔- A method of valuing a target
company that applies a market determined multiple to net income, earnings per share, sales,
book value, and so forth.
Preferred Stock Dividends - CORRECT ANSWER✔✔- Fixed. Have priority over common
stock dividends.
convertible preferred stock - CORRECT ANSWER✔✔- Preferred stock with an option to
exchange it for common stock at a specified rate.
cumulative preferred stock - CORRECT ANSWER✔✔- Preferred stock on which undeclared
dividends accumulate until paid; common stockholders cannot receive dividends until
cumulative dividends are paid.
Free Cash Flow - CORRECT ANSWER✔✔- net operating profit after taxes (NOPAT), add in
depreciation expense, then subtract money set aside for capital expenditures and any need for
increasing working capital
Capital Asset Pricing Model (CAPM) - CORRECT ANSWER✔✔- a model that relates the
required rate of return on a security to its systematic risk as measured by beta
call option - CORRECT ANSWER✔✔- the option to buy shares of stock at a specified time
in the future
put option - CORRECT ANSWER✔✔- the option to sell shares of stock at a specified time in
the future
Cash Conversion Cycle (CCC) - CORRECT ANSWER✔✔- the length of time funds are tied
up in working capital, or the length of time between paying for working capital and collecting
cash from the sale of the working capital
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