Question 1

1 point possible (graded)

Our company uses a growing perpetuity model to analyze its corporate value.

The value is currently modeled based on:

Annual revenues $28m

Annual costs are $20m

Net inflow in the first year $8m

Cost of capital 12%

Growth rate 2%

If the growth rate were to increase, with no other changes, then the corporate value would normally be expected to:

a) Stay the same.

b) Decrease.

c) There's not enough information to answer.

d) Increase.

Question 2

Our company uses a growing perpetuity model to analyze its corporate value.

The value is currently modeled based on:

Annual revenues $28m

Annual costs are $20m

Net inflow in the first year $8m

Cost of capital 12%

Growth rate 2%

If the growth rate were to decrease, with no other changes, then the corporate value would normally be expected to:

a) Stay the same.

b) There's not enough information to answer.

c) Increase.

d) Decrease.

Question 3

Our company uses a declining perpetuity model to analyze its corporate value.

The value is currently modeled based on:

Annual revenues $28m

Annual costs are $20m

Net inflow in the first year $8m

Cost of capital 12%

Rate of decline -2%

If the rate of decline were to accelerate, with no other changes, then the corporate value would normally be expected to:

a) Increase.

b) Decrease.

c) There's not enough information to answer.

d) Stay the same.

Question 4

Our company uses a declining perpetuity model to analyze its corporate value.

The value is currently modeled based on:

Annual revenues $28m

Annual costs are $20m

Net inflow in the first year $8m

Cost of capital 12%

Rate of decline -2%

If the rate of decline were to slow down, with no other changes, then the corporate value would normally be expected to:

a) Increase.

b) Decrease.

c) There's not enough information to answer.

d) Stay the same.