CBS Corporate Finance & Investment 4

Question 1

Which valuation method estimates a company's value based on a multiple of its EBITDA?

Accepted Answer

Comparable Company Analysis

Answer

Comparable company analysis applies industry EV/EBITDA multiples from peer companies to value a firm.

Question 2

What is 'financial leverage' in corporate finance?

Accepted Answer

Using borrowed funds to amplify returns on equity

Answer

Financial leverage involves using debt to increase potential returns to equity holders, amplifying both gains and losses.

Question 3

A company repurchases its own shares on the open market. What is the most direct effect on EPS?

Accepted Answer

EPS increases because fewer shares are outstanding

Answer

Share buybacks reduce the share count, which increases earnings per share if net income stays constant.

Question 4

The Capital Asset Pricing Model (CAPM) is used primarily to determine:

Accepted Answer

The required rate of return on an investment given its risk

Answer

CAPM calculates the expected return of an asset using the risk-free rate, beta, and market risk premium.

Question 5

Which of the following is an example of a sunk cost?

Accepted Answer

Research costs already spent on a cancelled project

Answer

Sunk costs are past expenditures that cannot be recovered and should not influence future capital budgeting decisions.

(CBS) Certified Budget Specialist Practice Test