Practice Test GeeksCFO - Certified Chief Financial Officer Practice Test
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Investment Analysis Flashcards

7 cards from real CFO practice questions. Tap to flip, then mark Knew It or Still Learning — missed cards come back until you master them.

Read the first 7 Investment Analysis flashcards as text

  1. When valuing a company using free cash flow to the firm (FCFF), which discount rate should be applied?

    Answer: Weighted average cost of capital (WACC)

    FCFF is available to all capital providers, so it is discounted at the blended WACC.

  2. Free cash flow to equity (FCFE) should be discounted at which rate?

    Answer: Cost of equity

    FCFE belongs only to shareholders, so the cost of equity is the consistent discount rate.

  3. A firm expects free cash flow of $5 million next year, growing at 3% forever, with a WACC of 9%. What is the terminal value using the perpetuity growth method?

    Answer: $83.3 million

    TV = $5M ÷ (0.09 − 0.03) = $83.3 million.

  4. A company has equity market value of $500 million, total debt of $200 million, and cash of $50 million. What is its enterprise value?

    Answer: $650 million

    EV = equity value + debt − cash = $500M + $200M − $50M = $650M.

  5. How does an embedded option to expand a project typically affect its valuation compared with a static DCF?

    Answer: It increases project value, so static NPV understates it

    Real options give management flexibility with value that a static NPV fails to capture.

  6. In an acquisition, how is synergy value best defined?

    Answer: Combined firm value minus the sum of standalone firm values

    Synergy is the incremental value created by combining firms beyond their independent values.

  7. A project's cash flows are forecast in nominal dollars including expected inflation. Which discount rate is consistent?

    Answer: Nominal discount rate

    Nominal cash flows must be discounted at a nominal rate to keep inflation treatment consistent.

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