Which of the following is not considered a capital component for the purpose of calculating the weighted average cost of capital as it applies to capital budgeting? *

Common stock.

Preferred stock.

Long-term debt.

Short-term debt.

The three elements needed to estimate the cost of equity capital for use in determining a firm's weighted-average cost of capital are *

Current dividends per share, expected growth rate in dividends per share, and current book value per share of common stock.

Current earnings per share, expected growth rate in earnings per share, and current book value per share of common stock.

Current earnings per share, expected growth rate in dividends per share, and current market price per share of common stock.

Current dividends per share, expected growth rate in dividends per share, and current market price per share of common stock.

In computing the cost of capital, the cost of debt capital is determined by *

Interest rate times (1 - the firm's tax rate)

The capital asset pricing model.

Annual interest payment divided by the book value of the debt.

Annual interest payment divided by the proceeds from debt issuance.

These are situation that most likely consider liquidation value, except *

Business Failures

Divestment

Corporate End of Life

Depletion of scarce resources

___________ represents the net amount that can be gathered if the business is shut down and its assets are sold piecemeal *

Going concern value

Liquidation Value

Bankruptcy value

Closing Value

When calculating the cost of capital, the cost assigned to retained earnings should be *

Zero.

Equal to the cost of external common equity.

Lower than the cost of external common equity.

Higher than the cost of external common equity.

________ is the analytical (quantitative) process of determining the current or projected worth (value) of an asset or something. *

Valuation

Accounting

Liquidation Value

Book Value

Using the book value has its advantages, the following statements provide them except *

Information necessary for computation can be quickly gathered

Validated by a third-party expert with knowledge on how much assets are sold in the open market

Shows a transparent view on firm value

Can easily be validated by reviewing the company's audited financial statements

The _______________ is also known as income-based valuation approach *

Earnings approach

Market approach

Asset-based approach

Going concern approach

The key principles in valuation refers to general concepts for most valuation techniques put emphasis on future cash flows except for some circumstances where value can be better derived from asset liquidation is *

The value of a business is defined only at a specific point in time

Value varies based on the ability of business to generate tangible future cash flows

Firm value can be impacted assets

Market dictates the appropriate rate of return for investors

When determining replacement costs of assets, valuators tend to consult with *

Actuaries

Board of Directors

Appraisers

Equity Analysts

The _________ of accounting means that the financial statements are prepared where income and expenses must be recognized in the accounting periods to which these are incurred. *

accrual basis

deferral basis

cash basis

none of the above

An investor uses the capital asset pricing model (CAPM) to evaluate the risk-return relationship on a portfolio of stocks held as an investment. Which of the following would not be used to estimate the portfolio's expected rate of return? *

Standard deviation of the market returns.

Interest rate for the safest possible investment.

Expected rate of return on the market portfolio.

Expected risk premium on the portfolio of stocks.

The value of a business can be basically linked to three major factors, except *

Current Operations

Future Prospects

Embedded Risks

None of the above

The following methods shows the most recent value of the firm assets in the market as of the valuation date, except *

Replacement value method

Liquidation value method

Reproduction Value Method

Book Value Method

The following are the reasons for performing a business valuation, except *

Litigation

Buying a business

Funding

None of the above