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

WACC blends the cost of equity and after-tax cost of debt weighted by their respective proportions, representing the minimum return a company must earn on its assets.

Question 2

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

Accepted Answer

Discounted cash flow (DCF) analysis

Answer

DCF analysis estimates a company's intrinsic value by discounting its projected free cash flows back to the present using an appropriate discount rate.

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

Terminal value captures the present value of all cash flows expected after the discrete forecast period, typically using a perpetuity growth model or exit multiple.

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

Beta measures a stock's sensitivity to market movements; a beta of 1.2 means the stock tends to move 20% more than the market in either direction.

Question 5

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

Accepted Answer

Market cap plus total debt minus cash and equivalents

Answer

Enterprise value represents the total value of the firm available to all capital providers: equity market cap plus debt minus cash.

CFM - Certified Finance Manager Practice Test

CFM - Certified Finance Manager Practice Test

CFM Corporate Finance & Valuation