True Or False

296 Required Homework Questions 297 98 Because it is impossible to forecast market inefficiencies, there is little reason for investors to employ quantitative valuation techniques. 99 An expensive investment is priced near it's fair value. 00 Equity as very good barometer of value despite the rise in Intangible Assets. 01 CAPM describes the relationship between the excess return of a stock and the excess return of the market relative to the 'risk-free rate'. 02 The Efficient Market Hypothesis asserts that assets are valued at fair value reflecting all available information. 303 Financial analysis is conducted for a variety of reasons but always performed to support a decision. 04 06 0730 / 308 Required Homework Questions 309 310 Also called 'Absolute Valuation', intrinsic valuation is based on it's current price or market value. 311 Financial outperformance is defined as generating a positive retrun. 312 Valuation multiples reflect 'normalized' estimates of current financial performance rather than growth. 313 In 'Relative Valuation', the value of equity, debt or an asset is compared with historical values, comparable companies or a benchmark or index. 314 The value of an asset is based on the expected future cash flows it will generate. 315 Active investors are seeking positive alpha (a). 316 317 318Challenge Homework Questions Financial theory suggests that companies should only be willing to make acquisitions that generate a return equivalent to that of its existing operating business. It is broadly believed and reported that the majority of acquisitions are destructive of value. Acquiring a company is effectively making an investment in the equity market, requiring commensurate returns to justify the risk. In general, the regulators have increasingly rejected mergers and acquisitions. The last several years represented the third spike in the number of mergers and acquisitions. Acquisitions are almost always transacted at prices above the current market price of the acquired company, called the 'acquisition premium'. Most acquisitions are successful because of the synergies generated.Below is Challenge Homework An acquisition of a controlling interest of business or company is generally ownership of between 20% and 50% of the equity, accounted for using the equity method. A merger is the voluntary fusion of two companies on broadly equal terms into one new legal entity. An acquisition of a controlling interest of business or company is generally ownership of more than 50% of the equity, accounting for by consolidating the subsidiary. A merger is generally not voluntary and involves one company actively purchasing another, general the whole business or company. A passive interest in a business or company is generally ownership of less than 20%, accounted for using the cost method