FI480 EXAM 2 REVIEW QUESTIONS AND ANSWERS A+ GRADED

FI480 EXAM 2 REVIEW QUESTIONS AND
ANSWERS A+ GRADED


Different approaches to valuing common stock
1. FCF Model
2. Dividend growth model
3. Market multipels model
FCF Model
tool that clearly shows the connections between managerial choices and firm value
The FCF model can be applied to all _________________ whether or not they pay
a _______________ or whether they are ________________ traded or privately
held
companies, dividend, publicly
Broad applicability and clear links between managerial decisions and value
explain why the _____ model is the ________ widely used valuation model in
merger and acquisition analysis
FCF, most
Companies have two sources of value
value of operations
value of non-operating assets (financial assets)
- ST investments and investments in other businesses (other non-operating assets)
When using the FCF model a company's total intrinsic value is the value of
operations plus
the value of non-operating assets
The FCF model and Dividend growth model both have 2 things in common:
1. Value using constant growth
2. Value using nonconstant growth
For the dividend growth model the growth (g) must be _______ than Rs
less
Dividend yield
expected rate of return during the coming year due to dividends
D1/Po
The long term growth rate in dividends is _________ to the long term growth rate
in FCF
equal
Preferred stock
-Hybrid security.
-Similar to bonds in that preferred stockholders receive a fixed dividend which
must be paid before dividends can be paid on common stock.
-However, unlike bonds, preferred stock dividends can be omitted without fear of
pushing the firm into bankruptcy.