Reference no: EM132493163

State 'true' or 'false', and briefly explain your answer.

Question 1. Since valuation models are quantitative, the valuation is objective.

Question 2. When valuing companies, we should match the maturity of the risk free rate to our investment horizon.

Question 3. The appropriate risk-free rate for a firm operating in two different countries is the average of the risk-free rates of the two countries.

Question 4. Other things being equal the beta of a stock with higher operating leverage will be higher.

Question 5. EPS growth rate may be different to net income growth rate.

Question 6. Valuations using Free Cash Flow to Equity or Dividends will lead to different results.

Question 7. Required return of the shareholders is the appropriate discount rate for Free Cash Flow to Firm.

Question 8. We should ignore acquisitions when valuing firms since the timing and scale of acquisitions is difficult to forecast.

Question 9. In steady state, the return on equity will grow at the steady state growth rate.

Question 10. Firms with a higher Price/Book ratio are overvalued relative to those with a lower ratio.

Question 11. Enterprise value to EBIT ratio should not be used for relative valuation because it is an inconsistent ratio.

Question 12. Free Cash Flow to Firm can be negative even for firms with positive after tax operating income.