Question

1- which one of the following statements regarding valuation is false

a when using the discounted free cash flow model, we should use a firm's wacc

b. the comparables method takes into acount important differences between different firms

c the difference between the discounted free cah flow model and the dividend discount model is that the latter computes a firms stock price directly while the free cash flows model has to make adjustments to get the share price

d one advantage of using the comparables method (compared to a discounted cash flows method) is that it is based on actual stock prices of real firms

2 whihc of the following best describes an outside source that invest in the private equity of young firms for strategic reason

a family investors

b. venture capital firms

c angel investors

d corporate investors

3- which of the following statements regarding bonds and their terms is false

a. bond prices drop when credit risk goes up

b. the yield to maturity of a bond is the discount rate that sets the PV of the promised bond payments equal to the current market price of the bond

c. zero coupon bonds are always trded at a discount

d. compared to yield to maturity, coupon rates are a better measure of investors returns because they measure the interest that bond investors are getting

Answer 1

Question 1

C is false Dividend discount model is not computed directly it is sum of all future dividend payments discounted to present value

a,b and d are true

Question 2

C Angel Investors are firms to fund start ups and emerging companies which have high growth potential as a strategic investment.

Family invesstors are not outside persons

Angle invesstors usually look for return rather than strategic investment

Corporate investors are the companies usually invest in startups

Question 3

C is false Zero coupon bonds are always issued at discount than the face value of the bond but it is not necessary that they always trade at discount

Bond price drops when credit risk increases (i.e. credit rating downgraded)

b and d are true