FSA TEST QUESTIONS WITH ALL CORRECT ANSWERS
This demonstrates that:
a. equity valuation models are not related to company earnings
b. dividends are unrelated to earnings
c. equity valuation models can be irrational
d. the net loss was smaller than investors expected
e. all of the above...
FSA TEST QUESTIONS WITH ALL
CORRECT ANSWERS
This demonstrates that:
a. equity valuation models are not related to company earnings
b. dividends are unrelated to earnings
c. equity valuation models can be irrational
d. the net loss was smaller than investors expected
e. all of the above - Answer-d. the net loss was smaller than investors expected
The first step in stock valuation requires:
a. estimating the cost of capital
b. applying a valuation model
c. analyzing the business
d. creating financial statements - Answer-c. analyzing the business
Estimating a company's cost of capital requires
a. applying risk estimation model
b. applying valuation model
c. adjustment for time value of money and intrinsic value
d. adjustments for time value of money and risk - Answer-d. adjustments for time value
of money and risk
A company's intrinsic value is its
a. market value
b. economic value assuming actual payoffs are known
c. carrying value of debt
d. stock price - Answer-b. economic value assuming actual payoffs are known
Valuation models are typically based on payments investors expect to receive in the
future.
T/F - Answer-True
, There is no difference between valuing debt securities and equity securities since the
value of a debt security is the present value of the interest and principal payments that
the investor expects to receive in the future and the valuation of equity securities is also
based on expectations
T/F - Answer-False
Firms can increase free cash flow to the firm in the short run by cutting back on
investments in fixed assets
T/F - Answer-False
The DCF model of valuation is superior to ROPI in that it addresses investors'
increasing concern with perceived earnings management by companies.
T/F - Answer-False
NOPAT is equal to net income less interest expense incurred during the year.
T/F - Answer-False
The WACC is computed as WACC = (rd * % of debt) + (re * % of ni)
ROPI model estimates firm value as the current BV of net operating assets plus the
present value of expected residual operating income
T/F - Answer-True
ROPI focuses on NI which is more accurate measure of future profitability than
expected cash flows
T/F - Answer-False
focuses on NOPAT which is more accurate measure
The power of ROPI model is that it allows managers to focus on either the IS or the BS
to increase firm value
T/F - Answer-False
it focuses on both
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