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Understanding financial environment of corporations

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1. Financial ratios are employed in understanding the financial environment of corporations. Which one of the following is not a correct use of financial ratios?

Capture trends in the relationship among variables

Capture the risk inherent in the stock market

Capture the behavior of ratios across time

Comparison of ratios with similar ?rms

Comparison of relationships across ?nancial-statement line items

2. There are many ways to calculate the components of the WACC. Which of the following is not a valid methodology?

Net present value to find the cost of debt

Capital asset pricing model to find the cost of equity

Dividend growth model to find the cost of equity

Yield to maturity on existing debt to find the cost of debt

Yield to maturity on debt issued by comparable companies

Reference no: EM132058431

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