Asset Valuation Flashcards
7 cards from real CFA practice questions. Tap to flip, then mark Knew It or Still Learning — missed cards come back until you master them.
Read the first 7 Asset Valuation flashcards as text
Which of the following valuation multiples is least affected by differences in capital structure across companies?
Answer: EV/EBITDA
EV/EBITDA is capital structure-neutral because EV represents total firm value and EBITDA is pre-interest, unlike equity-based multiples.
If a firm's return on equity (ROE) equals its cost of equity, the price-to-book ratio should be closest to:
Answer: 1.0
When ROE = required return, all earnings are priced fairly and the firm creates no extra value, so P/B = 1.
In a precedent transaction analysis, control premiums are typically:
Answer: Included because an acquirer pays above market to gain control
Acquisition prices include a control premium, making precedent transaction multiples generally higher than public market comparables.
The sustainable growth rate (g*) is best expressed as:
Answer: ROE × (1 − payout ratio)
g* = ROE × retention ratio (1 − payout ratio), representing the maximum growth achievable without external equity financing.
Which type of real estate investment is best valued using a direct capitalization approach?
Answer: A stabilized income-producing property with predictable NOI
Direct capitalization (NOI / cap rate) works well for stabilized properties with steady, predictable net operating income.
A call option's intrinsic value is best described as:
Answer: The greater of zero and the stock price minus the strike price
Intrinsic value = max(0, S − X), representing the immediate payoff if the option were exercised right now.
Which factor would most likely increase the value of a put option on a stock?
Answer: An increase in the underlying stock's volatility
Higher volatility increases the probability that the stock will fall below the strike, increasing the put's expected payoff.