QUESTION 1

1. A yardstick company has current cash flows of $10 per year and a current price of $100 per share. It's expected future growth rate of cash flows if 4% and its cost of capital is 10%. What is the cash flow multiplier for this company?

   	A.	30
   	B.	17.33
   	C.	10
   	D.	16.67

1 points

QUESTION 2

1. When using historical data to estimate cost of capital, it is best to:

   	A.	base the estimate of the market risk premium on the average over the longest period for which data are available.
   	B.	base the estimate of the market risk premium on the average over a recent period of five years or so.
   	C.	base the estimate of the market risk premium on the average over the longest period for which modern portfolio theory was generally accepted by investors.
   	D.	base the estimate of the market risk premium on the difference between the historical average market return and the current risk-free interest rate.

1 points

QUESTION 3

1. When using the CAPM for valuation, what is the the best estimate of the risk-free rate?

   	A.	The currently available yield on riskless debt such as U.S. government bonds of a duration similar to the duration of the project being valued.
   	B.	The long-run historical average of yields on riskless debt such as US government bonds,.
   	C.	The historical average of yields on riskless debt such as US government bonds, for a short period, such as five years.
   	D.	The average rate used by faculty members in their finance classes.

1 points

QUESTION 4

1. In using the continuing value approach, it is a good idea to:

   	A.	forecast explicit values for as long as possible.
   	B.	forecast explicit values until either future performance is expected to have normalized or reasonable yardstick public companies can be found that would be at similar stages of development to the subject.
   	C.	use the shortest possible explicit value period
   	D.	forecast explicit values over five years and then use continuing value after.

1 points

QUESTION 5

1. Since early stage entrepreneurial firms are much riskier than the overall public market, they will have beta risk higher than one.

   True

   False