Reference no: EM132036628

1. The best approach to forecasting future performance is to focus only on the company's past earnings.

True

False

2. Management's choice of accounting methods and accrual estimates will not affect valuations based on earnings and book values.

True

False

3. Abnormal Earnings arise when a company is able to produce earnings that exceed the expected rate of return on equity.

True

False

4. Strategy analysis provides a critical understanding of a company's value proposition and whether they are likely to sustain current performance into the future.

True

False

5. Companies with positive Abnormal ROE's are able to invest their net assets to create value for shareholders and will have equity value-to-book ratios

A. Less than 1

B. Greater than 5

C. Greater than 1

D. Less than 0

6. The magnitude of a company's value-to-book ratio depends heavily on its

A. expected book equity growth

B. profit margins

C. sales turnover

D. none of the above

7. Companies can grow their equity base by (chose all that apply)

A. taking out new long term debt

B. issuing new stock

C. taking on additional short term debt

D. reinvesting profits

8. Valuation under the Discounted Cash Flow method involves

A. Forecasting free cash flows available to equity holders over a finite forecast horizon

B. Forecasting free cash flows beyond the terminal year based on some simplified assumptions

C. Discounting free cash flows to equity holders at the cost of equity

D. All of the above

9. The phrase "terminal year" refers to

A. the year when analysts believe the company will cease to exist

B. the year the company files bankruptcy

C. the last year in any given forecast

D. the year the board expects the CEO to retire