Reference no: EM132871953

Address all the questions clearly

1. The ROE ( return in equity)is the ratio between net income and shareholder's equity .The meaning of ROE is return to shareholders .consequently, is ROE a correct return to shareholders?

2. Regarding the WACC that has been applied to the project should it be an expected return, an opportunity cost or an average historical return on similar projects?

3. Could we assume that, as we cannot predict the future evolution of the value of shares, a good approximation could be to consider it constant during the next five years?

4. The reasonable thing to do is to finance reasonable assets (collections, inventories) with short term text and fixed assets with long term debt. Is this correct?

5. Is the market risk premium a parameter for the national economy or for the world economy?

6. The market risk premium is the difference between historical returns on the stock market and the return on bonds. But how many years does "historical" imply? sall we use arithmetic means or geometric one?

7. We are valuing a , a lot smaller than ours, in order to buy it. As that company is a lot smaller than ours it will have no influence on the capital structure and on the risk of the resulting company. This id the reason why I believe the is the beta and capital structure which are relevant to the valuation of the company we are analyzing are the one of our company .Am I right?

8. Our company (A) is going to buy another company (B). We want to value the shares of B and, therefore, we will use three alternatives of the structure Debt/shareholders' equity so as to obtain the WACC :1) present structure of A;2)Present structure of B, and 3)structure used by A to finance the acquisition B' shares . We will value the company B by applying these three alternative and then take as a reference the average of the results. is it correct?

9. When valuing the shares of the company, I calculate the present value of the expected cash flow to shareholders and I add to the results obtained cash holding and liquid investments. Is that correct?

10. I think the free cash flow can be obtained from the equity cash flow (CFac)by using the relation :FCF=CFac+interest-D. is it true?

11. Is the relationship between capitalization and book value of shares a good guide to investments?

12. Does it make any sense to form portfolio comprised of companies with higher return per dividend?