2. Solve for the following:

The zero growth model is a special case of what valuation model?

a. Variable growth model

b. Perpetuity valuation model

c. Delta growth model

d. Constant growth model

e. None of the above

Which of the following is true of the enterprise valuation model?

a. Discounts free cash flow to the firm by the cost of equity

b. Discounts free cash flow to equity by the weighted average cost of capital

c. Discounts free cash flow to the firm by the weighted average cost of capital

d. Discounts free cash flow to equity by the cost of equity

Which of the following is true of the equity valuation model?

a. Discounts free cash flow to equity by the cost of equity

b. Discounts free cash flow to the firm by the weighted average cost of capital

c. Discounts free cash flow to equity by the weighted average cost of capital

d. Discounts free cash flow the firm by the cost of equity

Which of the following is true about the variable growth model?

a. Present value equals the discounted sum of the annual forecasts of cash flow plus the discounted value of the terminal value

b. Present value equals the discounted sum of the annual forecasts of cash flow

c. Present value equals the current years free cash flow discounted in perpetuity

d. Present value equals the discounted value of the next years cash flow grown at a constant rate in perpetuity

When evaluating an acquisition, you should do which of the following:

a. Ignore the timing of when the cash flows will be received

b. Ignore acquisition fees and transaction costs

c. Ignore potential losses of management talent

d. Ignore market values of assets and focus on book value

e. Apply the discount rate that is relevant to the incremental cash flows

The incremental cash flows of a merger can relate to which of the following:

a. Working capital (WC)

b. WC, profits, income taxes and profits

c. Profits

d. Income taxes

e. Capital spending