FIN 420 EXAM 3 CH 14 18 MERGERS ACQUISITIONS VALUATION METHODS SYNERGY ANALYSIS FINANCIAL MODELING REVIEW GUIDE

FIN 420 EXAM 3 CH 14 18 MERGERS
ACQUISITIONS VALUATION METHODS
SYNERGY ANALYSIS FINANCIAL
MODELING REVIEW GUIDE

●●
Answer: A Answer: The theory supporting dividends-based valuation is


a. dividends are value-relevant to common equity shareholders because
the dividends are cash flows directly to the equity shareholders.
b. dividends are established by the policies of the managers and the
board of directors of the firm.
c. dividends represent the free cash flows into the firm.
d. dividends are equivalent to the difference between the comprehensive
income and the required income ("normal earnings") of the firm.


●●
Answer: D
Because: E[REj] = E[RF] + βj × {E[RM] - E[RF]}]
Answer: Under the CAPM, the expected rate of return is based on the
following component(s):
a. the risk-free rate of return.
b. the firm's systematic risk, estimated with the firm's market beta.

, c. the market risk premium.
d. all of these responses are correct.


●●
Answer: D Answer: Under the CAPM, the expected rate of return
compensates investors for


a. unsystematic risk.
b. systematic risk.
c. the time value of money.
d. both systematic risk and the time value of money.


●●
Answer: False
Because: This statement is false because the dividends-based valuation
approach includes all cash flows from the firm to the shareholder,
including cash flows from share repurchases as well as the final
liquidating dividend. Therefore, this valuation approach can be used for
all firms
Answer: The dividends-based valuation approach cannot be used for
firms that do not pay dividends.
a. True
b. False