Reference no: EM131075689
1. Which of the following statements is FALSE?
A) The more cash the firm uses to repurchase shares, the less it has available to pay dividends.
B) Free cash flow measures the cash generated by the firm after payments to debt or equity holders are considered.
C) We estimate a firm's current enterprise value by computing the present value (PV) of the firm's free cash flow.
D) We can interpret the enterprise value as the net cost of acquiring the firm's equity, taking its cash, and paying off all debts.
2. Which of the following statements is FALSE?
A) The firm's weighted average cost of capital, denoted rWACC, is the cost of capital that reflects the risk of the overall business, which is the combined risk of the firm's equity and debt.
B) We interpret rWACC as the expected return the firm must pay to investors to compensate them for the risk of holding the firm's debt and equity together.
C) When using the discounted free cash flow model we should use the firm's equity cost of capital
D) Intuitively, the difference between the discounted free cash flow model and the dividend discount model is that in the divided- discount model the firm's cash and debt are included indirectly through the effect of interest income and expenses on earnings in the dividend-discount model
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