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Homework answers / question archive /  The risk-adjusted discount rate used to compute the present value of all the projected free cash flows for common equity shareholders equals the _______________________________________________________

 The risk-adjusted discount rate used to compute the present value of all the projected free cash flows for common equity shareholders equals the _______________________________________________________

Finance

  1.  The risk-adjusted discount rate used to compute the present value of all the projected free cash flows for common equity shareholders equals the _______________________________________________________.
  2. 3. 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 ______________________________________________________________________.
  3. 4. The cash-flow-based valuation approach measures and values the cash flows that are "free" to be ________________________________________ unencumbered by necessary reinvestments in operating assets or required payments to debt holders.
  4. 5. Net cash flow from operations -________________ -dividends equals_______________________
  5. 6. If cash flow projections include the effect of inflation then the discount rate used should be a ____________________ rate.
  6. 8. Equity-based valuation models are based on all metrics except
  7. 10. When deriving the equity value of a firm, an analyst forecasts the real dividends expected to be paid in the future. In this case, which discount rate should be used?
  8. Equity valuation models based on dividends, cash flows, and earnings have been the
    topic of many theoretical and empirical research studies in recent years. All of the following are true regarding these studies except:
  9. The historical discount rate of the firm may be a good indicator of the appropriate discount
    rate to apply to the firm in the future, when all of the following conditions hold true except:
  10. 13. Firm-specific factors that increase the firm's nondiversifiable risk include all of the following except:

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  1. 2. The risk-adjusted discount rate used to compute the present value of all the projected free cash flows for common equity shareholders equals the _______________________________________________________.

ANS: required rate of return on equity capital

  1. 3. 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 ______________________________________________________________________.

ANS: free cash flow for all debt and equity capital

  1. 4. The cash-flow-based valuation approach measures and values the cash flows that are "free" to be ________________________________________ unencumbered by necessary reinvestments in operating assets or required payments to debt holders.

ANS: distributed to shareholders

  1. 5. Net cash flow from operations -________________ -dividends equals_______________________

ANS: Capital expenditures, free cash flow

  1. 6. If cash flow projections include the effect of inflation then the discount rate used should be a ____________________ rate.

nominal

  1. 8. Equity-based valuation models are based on all metrics except

working capital

  1. 10. When deriving the equity value of a firm, an analyst forecasts the real dividends expected to be paid in the future. In this case, which discount rate should be used?

the real rate of return

  1. Equity valuation models based on dividends, cash flows, and earnings have been the
    topic of many theoretical and empirical research studies in recent years. All of the following are true regarding these studies except:

unexpected changes in earnings, dividends, and cash flows do not correlate closely
with changes in stock prices

  1. The historical discount rate of the firm may be a good indicator of the appropriate discount
    rate to apply to the firm in the future, when all of the following conditions hold true except:

The current mix of debt and equity financing is equal.

  1. 13. Firm-specific factors that increase the firm's nondiversifiable risk include all of the following except:

exposure to management competence

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