1. are common forms of non-cash expenses for a firm.

1. Depreciation and amortization
2. Depreciation and interest
3. Depreciation and dividends
4. All of the above

2. Which of the following statements regarding the selection of how many years to use in estimating FCFF is FALSE?

1. There is no set rule for how many years to use.
2. Common practice suggest five to ten years is a reasonable amount of time for the explicit forecast.
3. One guiding principle is to project out the number of years until you're willing to assume that a firm's free cash flows will grow at a constant rate.
4. All of the above are true.

3. Ellis Manufacturing Inc. has estimated FCFF for each of the next five years and believes that subsequent cash flows will grow at a constant annual rate of 3% indefinitely. If FCFF are $4,500,000 in year five, and the cost of capital is 9%, what is the value in year five of these terminal value cash flows?

4. offer the advantage of ease of application offset by a lack of precision.

1. Relative valuation methods
2. Absolute valuation methods
3. Discounted cash flow methods
4. The Fama-Jensen methods

5. EBITDA is an acronym for:

1. earnings before interest, taxes, depreciation, and annuitization.
2. earnings before interest, taxes, depreciation, and amortization.
3. earnings before income taxes, depreciation, and amortization.
4. earnings before income taxes, depreciation, and annuitization.

6. Which of the following statements about Economic Value Added (EVA) is NOT true?

1. EVA is a measure of value creation.
2. EVA is a process for attempting to create value.
3. If a firm generates positive EVA then it increases shareholder value.
4. All of the above are true.

7. In order for a firm to realize positive EVA, the:

1. ROCE must be less than the cost of capital.
2. cost of capital must be greater than the ROCE.
3. ROCE must be greater than the cost of capital.
4. the ROCE and cost of capital must be equal.

8. Which of the following decisions by management could increase a firm's Market Value Added (MVA)?

1. Improve the rate of return on the existing capital base.
2. Invest more capital in attractive projects with returns that exceed the cost of capital.
3. Stop investing in projects that have returns less than the appropriate cost of capital.
4. All of the above.

9. Which of the following statements is TRUE?

1. Firms can grow externally through mergers and acquisitions.
2. A merger involves the formation of a new economic unit from two or more units.
3. An acquisition usually involves a larger firm acquiring control of a smaller firm.
4. All of the above are true.

10. Active Athletics Inc. has an EBIT of $400,000, $150,000 in depreciation, $500,000 in outstanding debt, a forward-looking EV/EBITDA multiple of 6.0, and an estimated cost of capital of 14%. Use the EV/EBITDA approach to value the firm.

A) $2,800,000

B) $2,400,000

C) $1,700,000

D) $1,500,000