- When calculating free cash flows to common equity shareholders, financing activities do not include:
a.
Debt cash flows
b.
Adjustments for capital expenditures
c.
Adjustments for Preferred stock cash flows
d.
Financial asset cash flows
b.
Adjustments for capital expenditures
- If an analyst wants to value a potential investment in the common stock equity in a firm, the relevant cash flows the analyst should use are
a.
free cash flow from operations
b.
free cash flows for all debt and equity capital stakeholders
c.
free cash flows to common equity shareholders
d.
cash flow from operations
c.
free cash flows to common equity shareholders
- If an analyst wants to value a potential investment in the net operating assets of a division of another firm, the relevant cash flows the analyst should use are
a.
free cash flow from operations
b.
free cash flows for all debt and equity capital stakeholders
c.
free cash flows to common equity shareholders
d.
cash flow from operations
b.
free cash flows for all debt and equity capital stakeholders
- If an analyst wants to value a potential investment in the net operating assets of a division of another firm, the analyst should discount the projected free cash flows at the
a.
cost of debt capital
b.
cost of equity capital
c.
weighted average cost of capital
d.
risk free rate
c.
weighted average cost of capital
- A disadvantage of the free cash flow valuation method is
a.
The terminal value tends to dominate the total value in many cases.
b.
The projection of free cash flows depends on earnings estimates.
c.
The free cash flow method is not rigorous.
d.
The free cash flow method is not used widely in practice.
A disadvantage of the free cash flow valuation method is
- Continuing free cash flows represent
a.
the cash flows remaining after deducting cash flows attributable to debt holders
b.
the free cash flows after the point at which the firm has settled into a long-run steady-state growth rate.
c.
all sustainable free cash flows
d.
all after-tax free cash flows
b.
the free cash flows after the point at which the firm has settled into a long-run steady-state growth rate.
- Financial assets include all of the following except
a.
Excess cash
b.
short term investments
c.
intangible assets
d.
long trm investments
c.
intangible assets
- Financial liabilities include all of the following except
a.
mortgages payable
b.
current maturities of long term debt
c.
accrued taxes
d.
bonds payable
c.
accrued taxes
- An equity security with systematic risk equal to the average amount of systematic risk of all equity securities in the market
a.
has a market beta equal to one.
b.
should expect to earn the same rate of return as the average stock in the market portfolio.
c.
gives no insight into the risk premium of stock.
d.
Both a and b are correct.
d.
Both a and b are correct.
- The risk-adjusted discount rate used to compute the present value of all the projected free cash flows for common equity shareholders equals the _______________________________________________________.
required rate of return