Question No 5

Which of the following statements regarding financial securities is NOT accurate?

a. Credit card balances might be used as collateral for asset-backed securities.

b. A financial security refers to both publicly traded financial instruments and privately placed financial instruments.

c. Publicly traded financial instruments have greater liquidity than privately placed financial instruments.

d. The process of creating a financial security is called securitization.

Question 6

When a firm goes private due to an MBO, it means that:

a. it has gone private as a result of a malicious takeover.

b. the financing for the buyout involves substantial borrowing.

c. the outside funding for the buyout has come from a private equity fund.

d. the current management group has acquired the company.

Question 7

Which of the following statements regarding the FCF corporate valuation model is accurate?

a. The result of the present value calculation provides the value of equity.

b. The capital structure is assumed to be unstable.

c. The discount rate is based on the unlevered cost of equity.

d. No interest expense projections are needed.

Question 8

Which of the following statements is true of both the FCF and FCFE valuation models?

a. The result of the present value calculation provides the value of equity.

b. The capital structure is assumed to be stable.

c. Interest tax savings are assumed to grow at a constant rate.

d. The discount rate is based on the unlevered cost of equity.

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