NURSING TEST

Chapter12. Risk, Cost of Capital, and Valuation The weights used in the computation of a project's flotation costs should be based on the: the company's target debt-to-equity ratio. A firm with high operating leverage is best defined as a firm that has: high fixed costs relative to variable costs. What value should you assign as the flotation cost of internally generated equity financing? A cost of zero The beta of a security provides an estimate of the: character...

CHAPTER 7 FINANCIAL STATEMENT ANALYSIS Questions and Answers The fundamental approach to business valuation uses 1. Industry and economy-wide data. 2. Data from a firm's financial statements. __________ __________ assessment plays a central role in measuring a company's credit risk. Cash flow Rank the steps involved in valuing a company 1. Forecasting future amounts of some financial attribute. 2. Determining the risk associated with the forecasted future amounts. 3. D...

Financial Modeling Questions and Answers How would you forecast revenues? There are two approaches to model building — making your model realistic, or keeping it simple and robust. The first principles approach identifies various methods to model revenues with high degrees of detail and precision. There are also industry-specific considerations that need to be taken into account. For instance, when forecasting revenue for the retail industry, you will forecast expansion rate and derive inco...

Stock Valuation Questions and Answers Common Stock Represents ownership in a publicly held company. Common Stock Claims & Liability Common stockholders have a residual claim on the firm's assets. Common stockholders have limited liability. Profit & Stock Value Higher profits increase a stock's value and lower profits decrease its value, in a direct relationship. Stocks & Interest Rates Higher interest rates decrease market value and lower yields and lower interest...

L2, R25 Market Based Valuation Price and Enterprise Value Multiples Questions and Answers T/F: Enterprise multiples differ from price multiples because instead of using the market price in the numerator (equity price), EV uses the value of the company in the numerator (equity and debt) True Momentum indicators Relate either price or a fundamental value to a time series of its own past values or to its expected value T/F: The method of comparables is based on the law of one price...

Private Company Valuation Questions and Answers The characteristics that distinguish private and public companies can be delineated into: Company-specific and stock-specific factors. Overall, company-specific factors can have positive or negative effects on private company valuations, whereas stock-specific factors are usually a negative. Compared to public companies, private companies have greater heterogeneity so that the appropriate discount rates and methods for valuing them vary widely as...

Asset Valuation Exam 1 Questions and Answers Operating activities Activities directly related to the provision of goods and services to customers Investing activities Activities that provide productive capacity to facilitate future operating activities What is price of stock formula? the summation of all dividends discounted back: summation: (cash dividend + stock repurchases - Equity Issuances) / (1+r)^t Financing activities Activities to fund operating and investin...

Other Valuation Questions and Answers When we say we "triangulate" to a value, what does that mean? What methods might we use? When valuing a business, we typically look at multiple valuation approaches (DCF, Trading Comps, Transaction Comps, LBO, etc.) and make a judgment call about the most appropriate valuation range. What is Terminal Value? Reflects the discounted value of all Cash Flow beyond the explicit projection project period (Stage 1) for a DCF analysis. Why...

Business Valuation Final Questions and Answers The primary methods used to calculate the value of privately held business interests in the income approach are: a. Capitalization of Earnings/ Cash Flows Method and Excess Earnings/Treasury Method b. Excess Earnings/Treasury Method and Discounted Earnings/Cash Flows Method c. Capitalization of Earnings/Cash Flows Method and Discounted Earnings/Cash Flows Method d. Discounted Earnings/Cash Flows Method and Price/EBITDA Method C Genera...

IB Prep - Valuation Qs Questions and Answers What are the 3 major valuation methodologies? Comparable companies, precedent transactions, and discounted cash flow analysis. Rank the 3 valuation methodologies from highest to lowest expected value. Trick question--there is no ranking that always holds. In general, precedent transactions will be higher than comparable companies due to the control premium built into acquisitions. Beyond that, a DCF could go either way and it's best to...

BIWS Valuation Guide Questions and Answers Why is P/E is the worst multiple (3)? -it includes non cash charges, is impacted by tax rates, and is not capital structure neutral Why don't we use FCF multiples even though they're more accurate than EBITDA or EBIT multiples (2)? -takes more time to calculate (convenience) -may not be standardized because companies include different items in the CFO in the SCF (comparability) Book Value is another word for shareholders' equ...

Valuation Exam 3 Questions and Answers matching discount rate and CFs -wacc is for expected cash flows -promised CFs need a higher discount rate b/c don't incl. risk -rf rate is for CFs from forward (market prices) why are PE hurdle rates so high? -very risky investments -PE firm provides expertise -hoped for CFs, not expected -opportunity costs -liquidity premium adjusted valuation process -focus on terminal value -CF insignificant in early periods -negotiate owners...

Unit 1 - Challenge 1 Goals and Organizations of Financial Management Questions and Answers Finance is the study of fund management and a. credit b. accounting c. economics d. asset allocation asset allocation The primary purpose of finance is to __________. a. manage assets in a way that maximizes returns b. pay off debt as quickly as possible c. study the effects of the economy on businesses d. keep track of a business's cash flow manage assets in a way that maximizes r...

Equity Valuation pt. 3 Questions and Answers A price earnings ratio that is derived from the Gordon growth model is inversely related to the: A) growth rate. B) dividend payout ratio. C) required rate of return. C) required rate of return. P/E is inversely related to the required rate of return, r, and directly related to the growth rate, g, and the dividend payout ratio, D/E. The primary difference between P/E multiples based on comparables and P/E multiples based on fundamentals...

LLC Valuations Questions and Answer Walk me from Revenue to EBITDA. Start with revenue and subtract cogs which gives me gross profit, and then from there I subtract my operating expenses which gives me my operating income. After that I add in additional profit which gives me my EBIT, and then from there I add in depreciation and amoritization From a high level, what are the two types of valuation? Relative valuation and intrinsic valuation What is a relative valuation? Comparin...

Business Valuations Questions and Answers An advocate: Introduces subjective factors and attempts to rely more heavily on qualitative factors. What are the three main reasons for tax related valuations? Estate tax, gift tax, and allocation of purchase price The major point(s) of Internal Revenue Code §2703 is/are... 1. An exception to restrictions on property exists for any option, agreement, right or restriction which (1) is a bona fide business arrangement, (2) is not a devi...

IB Accounting Valuation Qualitative Subset Questions and Answers How do you value a company? Intrinsic valuation (DCF) versus Relative valuation (Multiples) What is the appropriate discount rate to use in an unlevered DCF? Weighted average cost of capital (weighted average of cost of debt / cost of equity) What is typically higher, the cost of debt or the cost of equity? Cost of equity, comes with higher risk and larger upside potential. Debt is paid first in capital stack. ...

Valuation Terms Questions and Answers 3 main approaches to valuation Intrinsic, relative, asset-based What's a LBO? a group of investors (typically private equity firm) purchases a company and finances the transaction primarily with debt. When is asset-based valuation used a company liquidating a bankruptcy filing Most popular model for intrinsic valuation Discounted Cash Flow (DCF) Why is relative Valuation popular? Easy What do you estimate the value...

Free Cash Flow and Other Valuation Models, LOS 31-34 Questions and Answers When to use FCFF instead of Div Discount Method appropriate models to use when (1) the firm doesn't pay dividends at all or pays out fewer dividends than dictated by its cash flow, (2) free cash flow tracks profitability, or (3) the analyst takes a corporate control perspective Warm-Up: Free Cash Flow Forget about all the complicated financial statement relationships for a minute and simply picture the fir...

Unit 6 Corporate Valuation Questions and Answers Which of the following are issues in the creation of the financial statements for business units? I. Allocating corporate overhead costs. II. Dealing with intercompany transactions. III. Estimating unit betas. IV. Dealing with incomplete information when using public information. I, II, and IV only. Which of the following questions relate to the economic consistency of a model? I. Are the patterns intended? II. Are the patterns reas...