CFM Corporate Finance & Valuation

Question 1

What is the weighted average cost of capital (WACC)?

Accepted Answer

A blended cost of all capital sources weighted by their proportion in the capital structure

Answer

The after-tax cost of debt only

Answer

The return required by common equity shareholders

Answer

The prime lending rate plus a spread

Question 2

Which valuation method discounts projected future cash flows back to present value?

Accepted Answer

Discounted cash flow (DCF) analysis

Answer

Comparable company analysis

Answer

Asset-based valuation

Answer

Price/earnings multiples approach

Question 3

What does the terminal value in a DCF model represent?

Accepted Answer

The present value of all cash flows beyond the explicit forecast period

Answer

The salvage value of physical assets at the end of the forecast period

Answer

The final year's net income multiplied by a P/E ratio

Answer

The cost to wind down the business

Question 4

In the capital asset pricing model (CAPM), beta measures:

Accepted Answer

A stock's systematic (market) risk relative to the overall market

Answer

A company's total risk relative to the market

Answer

The risk-free rate of return

Answer

The equity risk premium

Question 5

What is the enterprise value (EV) of a company?

Accepted Answer

Market cap plus total debt minus cash and equivalents

Answer

Total equity market capitalization

Answer

Total assets minus total liabilities

Answer

Net income multiplied by the P/E ratio

Question 6

What does the EV/EBITDA multiple measure in relative valuation?

Accepted Answer

How much total enterprise value investors pay per dollar of operating earnings before non-cash charges

Answer

How much equity investors pay per dollar of earnings

Answer

The ratio of debt to operating income

Answer

The dividend yield relative to enterprise value