Question 15:

Choose the best answer: What is one of the reasons that residual income is useful?

A) Useful when a business does not have dividends or free cash flow B) Increased focus on future cash flows C) It measures capital appreciation

Choose the best answer: What is one reason why the dividend yield (D/P) is used?

A) D/P measures business growth

B) D/P is a component of total return

C) D/P measures capital appreciation

Choose the best answer: Which of the following adjustments must be made to net income when calculating free cash flow for equity (FCFE)?

c) Subtract dividends paid b) Subtract debt repayment a) Add non-cash expenses

Choose the best answer: What is residual income? A) Income remaining after all capital charges B) Income remaining after payment of dividends C) Income remaining after payment of interest

Choose the best answer: According to the method based on forecast fundamentals A) If the real price multiple is greater than that justified by the companys fundamentals, the security is considered overvalued. B) Information is missing C) If the real price multiple is lower than that justified by the companys fundamentals, the security is considered overvalued.