Question

Please answer the below multiple choice questions

Question 17 1. The following are desirable characteristics of targets:

A. Rapidly growing cash flows and earnings.

B. Low P/E ratios.

C. Market value less than book value

D. All of the above.

Question 18 1. The discount rate used to discount future cash flows should:

A. Be equal to yield on long-term U.S. Treasuries.

B. Be 2% greater than yield on long-term U.S. Treasuries.

C. Incorporate a risk premium equal to perceived risks and volatility of future cash flow stream.

D. Usually will be 1% greater than yield on high yield bonds.

Assuming the Sales Growth rate for ACME Co., in year 6 is 6% and the NOPAT Margin, and CAPX as a % of Sales percentages are the same as in year 5. The Free Cash Flow in Year 6 is:

Question 19 The Free Cash Flow in Year 6 is:

A. 45.5 million

B. $47.8 million

C. $48.2 million

D. $42.9 million

Question 20 1. The Total Enterprise Value for Acme Co., is:

A. $804.1 million.

B. $456.3 million.

C. $595.4 million.

D. $495.4 million

Answer 1

17.1 Option a is correct. Targets are generally attractive because of their profitability and growth

18.1 Option c is correct. Discount rate has no relation with treasuries and yields. It is basically company's cost of capital which needs to be recovered to break even. Therefore it should contain elements of risk equal to future risk and volatility of cash flows in practical situations to be as realistic and accurate portrayal of profitability as possible.

Information for remaining questions is incomplete.