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Introduction to Business Valuation Questions and Answers Why perform a valuation? - selling a business - acquiring a business - raising money - investment recommendations - internal business decision making - impairment testing - valuing employee options and compensation - bankruptcy estate planning - litigation Factors to consider for a valuation - company management -industry & competition -threats and challenges -microeconomic environment -macroeconomic environment ...

FIN 674 - M&A Quiz 3 (Cash Flows) Questions and Answers correct A valuation model based on the cash flows that a firm will have available to pay dividends in the future is best characterized as a(n): Free cash flow to equity model (T/F) A "constant" growth rate is called a stable growth rate and cannot be higher than the growth rate of the economy in which the firm operates. True (T/F) The stable growth rate cannot be negative. False In forecasting free cash flows...

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...