Which of the following is not true about the variable growth valuation model?
Assumes a high growth period followed by a stable growth period.
B. Assumes that the discount rate during the high and stable growth periods is the same.
C. Is used primarily to evaluate firms in high growth industries.
D. Involves the calculation of a terminal value.
E. The terminal value often comprises a substantial percentage of the total present value of the firm.
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Which of the following is not true about the constant growth valuation model?
A. The firm's free cash flow is assumed to be unchanged in perpetuity
B. The firm's free cash flow is assumed to grow at a constant rate in perpetuity
C. Free cash flow is discounted by the difference between the appropriate discount rate and the expected growth rate of cash flow.
D. The constant growth model is sometimes referred to as the Gordon Growth Model.
E. If the analyst were using free cash flow to the firm, cash flow would be discounted by the firm’s cost of capital less the expected growth rate in cash flow.
Which of the following factors is excluded from the calculation of free cash flow to the firm?
A. Principal repayments
B. Operating income
C. Depreciation
D. The change in working capital
E. Gross plant and equipment spending
A firm's leveraged beta reflects all of the following except for
A. unleveraged beta
B. the firm’s debt
C. marginal tax rate
D. the firm's cost of equity
E. the firm's equity
Which one of the following factors is not considered in calculating the firm’s cost of capital?
A. cost of equity
B. interest rate on debt
C. the firm’s marginal tax rate
D. book value of debt and equity
E. the firm’s target debt to equity ratio
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