Question

QUESTION 1

1. One of the challenges of using the CEQ approach is that we would need to estimate the correlation between firm cash flows and market returns.

   True

   False

1 points   

QUESTION 2

1. One of the challenges in using the CEQ approach instead of the RADR approach is that we would need to estimate the CEQ beta for each period.

   True

   False

1 points   

QUESTION 3

1. If we seek to estimate continuing value in a scenario where the subject company is expected to go public at a future date, it would be good to collect a sample of similar firms that went public under similar market conditions and average their total market capitalization to free cash flow to all investors ratios at the time of going public.

   True

   False

1 points   

QUESTION 4

1. In the normal way of using the RADR approach, all future cash flows are discounted using the same cost of capital. This can be problematic if cash flows of different kinds or at different times can differ in risk.

   True

   False

1 points   

QUESTION 5

1. If we seek to estimate continuing value in a scenario where the subject company is expected to go public at a future date, it would be good to collect a sample of similar firms that went public under similar market conditions and average their equity to free cash flow ratios at the time of going public.

   True

   False

1 points   

QUESTION 6

1. If we seek to estimate continuing value in a scenario where the subject company is expected to go public at a future date, it would be good to collect a sample of similar firms that went public under similar market conditions, evaluate their comparability, and compute either a simple or weighted average their equity to free cash flow ratios at the time of going public.

   True

   False

Answer 1

Question 1 TRUE - This is one of the disadvantages of CEQ approach

Question 2 FALSE - The advantage of using CEQ approach is that you can circumvent the need to calculate beta.

Question 3 FALSE - This is not an accurate system of valuation

Question 4 TRUE - Under RADR approach, a single risk-adjusted discount rate is applied for all cash flows.

Question 5 TRUE - This can be a valid approach for estimating value

Question 6 TRUE - This can be a valid approach for estimating value