WGU 3D66 Section3 , WGU d366 study questions section 1, D366 Study
Guide , Financial Statement Analysis for Valuation, WGU D366 Section 2
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1. Which condition is necessary for a cash-flow-based Cash flow for the project-
valuation model to accurately estimate firm value? ed terminal value needs to
be positive.
The cash flow projection
for the terminal value must
be positive for the valu-
ation model to return a
valid estimate of firm val-
ue.
2. What is the correct interpretation of a negative num- Financial assets are
ber when calculating financing activities (NetFL)? greater than financial lia-
bilities
3. Which conclusion can be drawn if a cash-flow-based The terminal value for cash
valuation model returns a firm value higher than a flows is higher than the
dividend-based valuation model? dividend perpetuity.
4. What does the cash-flow-based valuation approach Cash flows that are avail-
measure and value? able for distribution to all
shareholders
5. An investor uses a free cash-flow-based approach to The firm's equity shares
determine the value of a firm. are overpriced.
Which conclusion may be drawn if the determined If the value of a firm
value of the firm is less than that of its stock? is determined to be
greater than that of
its equity shares, these
shares would be consid-
ered overpriced.
6.
, WGU 3D66 Section3 , WGU d366 study questions section 1, D366 Study
Guide , Financial Statement Analysis for Valuation, WGU D366 Section 2
Study online at https://quizlet.com/_fdlfly
The cash-flow-based valuation approach is used to True
measure and value cash flows that a firm has available The cash-flow-based valu-
to distribute to its shareholders ation approach is used to
measure and value avail-
able cash flows that a firm
can distribute to its share-
holders.
7. Given the rearrangement of the balance sheet for Net financing activities
cash-flow-based valuation, what do net operating as- plus shareholders' equity
sets equal?
8. In a cash-flow-based valuation for an acquisition, In an acquisition of assets,
when would a company use a weighted average cost where the financing struc-
of capital as a discount rate? ture is similar
9. Which procedure is accurate regarding the treatment Adding back after-tax in-
of interest in the calculation of free cash flows, when terest expense when cal-
starting from cash flows from operations? culating free cash flow for
all debt and equity stake-
holders
10. Company A intends to acquire the net operating as- DCF Model: a valuation
sets of Company B and needs to determine their val- technique used to esti-
ue. mate the intrinsic value of
Which cash flow valuation model should Company A an investment by consid-
use? ering its expected future
cash flows.
11. What should be considered when incorporating the Only cash that is not need-
cash account on the balance sheet for calculating free ed for operating liquidity
cash flow available for debt and equity stakeholders? should be considered
, WGU 3D66 Section3 , WGU d366 study questions section 1, D366 Study
Guide , Financial Statement Analysis for Valuation, WGU D366 Section 2
Study online at https://quizlet.com/_fdlfly
12. Which elements should be added to or subtracted Cash inflows from new
from cash flow from operations to calculate free cash borrowings
flow for common equity shareholders? Choose two
answers. Cash outflow for non-con-
trolling interest retire-
ments
13. A company has the following financial information, $2,168,399
with free cash flow equaling the amount available to
all debt and equity holders:
Free cash flow, Year 1$75,000Value of preferred stock,
Year 0$140,000Free cash flow, Year 2$82,000Dis-
count rate for assets (Ra)7.00%Free cash flow,
Year 3$84,000Weighted average cost of capital
(WACC)8.00%Free cash flow, Year 4$96,000Long-term
growth rate3.00%Value of debt, Year 0$225,000
What is the value of the net operating assets of the
firm, rounded to the nearest dollar?
14. A company has the following financial information: $1,138,464
Free cash flow, Year 1$37,000Value of preferred
stock, Year 0$62,000Free cash flow, Year 2$41,000Dis-
count rate for assets (Ra)6.50%Free cash flow,
Year 3$48,000Weighted average cost of capital
(WACC)6.90%Free cash flow, Year 4$53,000Long-term
growth rate2.80%Value of debt, Year 0$96,000
What is the value of the common equity capital net
operating assets of the firm, rounded to the nearest
dollar?
15.
, WGU 3D66 Section3 , WGU d366 study questions section 1, D366 Study
Guide , Financial Statement Analysis for Valuation, WGU D366 Section 2
Study online at https://quizlet.com/_fdlfly
What adjustment needs to be made to the sum of the The sum needs to be ad-
present values to calculate the total present value of justed by a mid-year dis-
common equity when starting with the free cash flow counting factor
available to common equity holders?
16. Which estimate is typically the most sensitive, mean- The long-term growth rate
ing a small change in the estimate results in a large
change in the firm valuation?
17. Which item is added back to earnings before interest, All noncash expenses oth-
taxes, depreciation, and amortization (EBIDTA) in the er than depreciation and
calculation of free cash flows for all debt and equity amortization
stakeholders when EBIDTA is used as a starting point?
18. All noncash income items would be subtracted from, False
not added to, EBIDTA
19. Which aspect of wealth is measured in earnings-based Wealth creation
firm valuation?
20. Why would an earnings-based valuation model be Earnings are the most
preferred to a cash-flow-based valuation model? widely followed measure
of a firm's performance.
21. Why would an earnings-based valuation model be Some companies do not
preferred to a dividend discount valuation model? pay dividends, but all
companies have earnings
or losses
22. What is the benefit of using accrual-basis earnings Accrual-basis numbers
numbers instead of cash-basis numbers for firm valu- are less manipulatable.
ations? The timing of making
a cash payment can be
Guide , Financial Statement Analysis for Valuation, WGU D366 Section 2
Study online at https://quizlet.com/_fdlfly
1. Which condition is necessary for a cash-flow-based Cash flow for the project-
valuation model to accurately estimate firm value? ed terminal value needs to
be positive.
The cash flow projection
for the terminal value must
be positive for the valu-
ation model to return a
valid estimate of firm val-
ue.
2. What is the correct interpretation of a negative num- Financial assets are
ber when calculating financing activities (NetFL)? greater than financial lia-
bilities
3. Which conclusion can be drawn if a cash-flow-based The terminal value for cash
valuation model returns a firm value higher than a flows is higher than the
dividend-based valuation model? dividend perpetuity.
4. What does the cash-flow-based valuation approach Cash flows that are avail-
measure and value? able for distribution to all
shareholders
5. An investor uses a free cash-flow-based approach to The firm's equity shares
determine the value of a firm. are overpriced.
Which conclusion may be drawn if the determined If the value of a firm
value of the firm is less than that of its stock? is determined to be
greater than that of
its equity shares, these
shares would be consid-
ered overpriced.
6.
, WGU 3D66 Section3 , WGU d366 study questions section 1, D366 Study
Guide , Financial Statement Analysis for Valuation, WGU D366 Section 2
Study online at https://quizlet.com/_fdlfly
The cash-flow-based valuation approach is used to True
measure and value cash flows that a firm has available The cash-flow-based valu-
to distribute to its shareholders ation approach is used to
measure and value avail-
able cash flows that a firm
can distribute to its share-
holders.
7. Given the rearrangement of the balance sheet for Net financing activities
cash-flow-based valuation, what do net operating as- plus shareholders' equity
sets equal?
8. In a cash-flow-based valuation for an acquisition, In an acquisition of assets,
when would a company use a weighted average cost where the financing struc-
of capital as a discount rate? ture is similar
9. Which procedure is accurate regarding the treatment Adding back after-tax in-
of interest in the calculation of free cash flows, when terest expense when cal-
starting from cash flows from operations? culating free cash flow for
all debt and equity stake-
holders
10. Company A intends to acquire the net operating as- DCF Model: a valuation
sets of Company B and needs to determine their val- technique used to esti-
ue. mate the intrinsic value of
Which cash flow valuation model should Company A an investment by consid-
use? ering its expected future
cash flows.
11. What should be considered when incorporating the Only cash that is not need-
cash account on the balance sheet for calculating free ed for operating liquidity
cash flow available for debt and equity stakeholders? should be considered
, WGU 3D66 Section3 , WGU d366 study questions section 1, D366 Study
Guide , Financial Statement Analysis for Valuation, WGU D366 Section 2
Study online at https://quizlet.com/_fdlfly
12. Which elements should be added to or subtracted Cash inflows from new
from cash flow from operations to calculate free cash borrowings
flow for common equity shareholders? Choose two
answers. Cash outflow for non-con-
trolling interest retire-
ments
13. A company has the following financial information, $2,168,399
with free cash flow equaling the amount available to
all debt and equity holders:
Free cash flow, Year 1$75,000Value of preferred stock,
Year 0$140,000Free cash flow, Year 2$82,000Dis-
count rate for assets (Ra)7.00%Free cash flow,
Year 3$84,000Weighted average cost of capital
(WACC)8.00%Free cash flow, Year 4$96,000Long-term
growth rate3.00%Value of debt, Year 0$225,000
What is the value of the net operating assets of the
firm, rounded to the nearest dollar?
14. A company has the following financial information: $1,138,464
Free cash flow, Year 1$37,000Value of preferred
stock, Year 0$62,000Free cash flow, Year 2$41,000Dis-
count rate for assets (Ra)6.50%Free cash flow,
Year 3$48,000Weighted average cost of capital
(WACC)6.90%Free cash flow, Year 4$53,000Long-term
growth rate2.80%Value of debt, Year 0$96,000
What is the value of the common equity capital net
operating assets of the firm, rounded to the nearest
dollar?
15.
, WGU 3D66 Section3 , WGU d366 study questions section 1, D366 Study
Guide , Financial Statement Analysis for Valuation, WGU D366 Section 2
Study online at https://quizlet.com/_fdlfly
What adjustment needs to be made to the sum of the The sum needs to be ad-
present values to calculate the total present value of justed by a mid-year dis-
common equity when starting with the free cash flow counting factor
available to common equity holders?
16. Which estimate is typically the most sensitive, mean- The long-term growth rate
ing a small change in the estimate results in a large
change in the firm valuation?
17. Which item is added back to earnings before interest, All noncash expenses oth-
taxes, depreciation, and amortization (EBIDTA) in the er than depreciation and
calculation of free cash flows for all debt and equity amortization
stakeholders when EBIDTA is used as a starting point?
18. All noncash income items would be subtracted from, False
not added to, EBIDTA
19. Which aspect of wealth is measured in earnings-based Wealth creation
firm valuation?
20. Why would an earnings-based valuation model be Earnings are the most
preferred to a cash-flow-based valuation model? widely followed measure
of a firm's performance.
21. Why would an earnings-based valuation model be Some companies do not
preferred to a dividend discount valuation model? pay dividends, but all
companies have earnings
or losses
22. What is the benefit of using accrual-basis earnings Accrual-basis numbers
numbers instead of cash-basis numbers for firm valu- are less manipulatable.
ations? The timing of making
a cash payment can be
