Which of the following is true of the enterprise valuation model?
A. Discounts free cash flow to the firm by the cost of equity
B. Discounts free cash flow to the firm by the weighted average cost of capital
C. Discounts free cash flow to equity by the cost of equity
Discounts free cash flow to equity by the weighted average cost of capital
E. None of the above
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The zero growth model is a special case of what valuation model?
A. Variable growth model
B. Constant growth model
C. Delta growth model
D. Perpetuity valuation model
E. None of the above
For a firm having common and preferred equity as well as debt, common equity value can be estimated in which of the following ways?
A. By subtracting the book value of debt and preferred equity from the enterprise value of the firm
By subtracting the market value of debt from the enterprise value of the firm
C. By subtracting the market value of debt and the market value of preferred equity from the enterprise value of the firm
D. By adding the market value of debt and preferred equity to the enterprise value of the firm
E. By adding the market value of debt and book value of preferred equity to the enterprise value of the firm
All of the following are true about the marginal tax rate for the firm except for
A. The marginal tax rate in the U.S. is usually about 40%.
B. The effective tax rate is usually less than the marginal tax rate.
C. Once tax credits have been used and the ability to further defer taxes exhausted, the effective rate can exceed the marginal rate at some point in the future.
D. It is critical to use the effective tax rate in calculating after-tax operating income in perpetuity.
E. It is critical to use the marginal rate in calculating after-tax operating income in perpetuity.
The calculation of free cash flow to equity includes all of the following except for
A. Operating income
B. Preferred dividends
Change in working capital
D. Gross plant and equipment spending
E. Principal repayments
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