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are common forms of non-cash expenses for a firm. Depreciation and amortization Depreciation and interest Depreciation and dividends All of the above Which of the
- are common forms of non-cash expenses for a firm.
- Depreciation and amortization
- Depreciation and interest
- Depreciation and dividends
- All of the above
- Which of the following statements regarding the selection of how many years to use in estimating FCFF is FALSE?
- There is no set rule for how many years to use.
- Common practice suggest five to ten years is a reasonable amount of time for the explicit forecast.
- 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.
- All of the above are true.
- 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?
- offer the advantage of ease of application offset by a lack of precision.
- Relative valuation methods
- Absolute valuation methods
- Discounted cash flow methods
- The Fama-Jensen methods
- EBITDA is an acronym for:
- earnings before interest, taxes, depreciation, and annuitization.
- earnings before interest, taxes, depreciation, and amortization.
- earnings before income taxes, depreciation, and amortization.
- earnings before income taxes, depreciation, and annuitization.
- Which of the following statements about Economic Value Added (EVA) is NOT true?
- EVA is a measure of value creation.
- EVA is a process for attempting to create value.
- If a firm generates positive EVA then it increases shareholder value.
- All of the above are true.
- In order for a firm to realize positive EVA, the:
- ROCE must be less than the cost of capital.
- cost of capital must be greater than the ROCE.
- ROCE must be greater than the cost of capital.
- the ROCE and cost of capital must be equal.
- Which of the following decisions by management could increase a firm's Market Value Added (MVA)?
- Improve the rate of return on the existing capital base.
- Invest more capital in attractive projects with returns that exceed the cost of capital.
- Stop investing in projects that have returns less than the appropriate cost of capital.
- All of the above.
- Which of the following statements is TRUE?
- Firms can grow externally through mergers and acquisitions.
- A merger involves the formation of a new economic unit from two or more units.
- An acquisition usually involves a larger firm acquiring control of a smaller firm.
- All of the above are true.
- 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
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