Legitimate use of free cash flow

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Reference no: EM131879611

1. Which of the following statements is true?

a. The Securities Exchange Commission (SEC) regulates only private securities offerings.

b. Angel investors are called angels because they provide capital at the end of a firm's life.

c. An underwriting syndicate is a collection of investment banks that work together to sell the shares.

d. The Securities Exchange Commission (SEC) regulates private securities offerings only if they are placed with an accredited investor.

e. Angel investors are called angels because they provide capital when the founding owner dies.

2. Which of the following is NOT a legitimate use of Free Cash Flow?

a. Pay down your line of credit at the end of the year as required by the terms of the loan.

b. Pay a special one-time dividend to avoid a takeover

c. Purchase U.S. Treasury Bills

d. Purchase a new production line to manufacture a new product

e. Pay the majority shareholder interest on a personal loan he made to the company.

3. Which of the following statements is true?

a. Interest tax shields and free cash flows can grow at different rates before the horizon in the APV model

b. The interest tax shield is included in the discount rate in the APV model

c. The APV model discounts separately the company's interest payments.

d. The dividend growth model will always give the same answer for the intrinsic value of a company's stock as the APV model.

e. The APV model discounts free cash flows and interest tax shields at the WACC.

Reference no: EM131879611

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