Essentials Of Investments
11th Edition
ISBN: 9781260013924
Author: Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher: Mcgraw-hill Education,
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When considering the discount rate to use for discounting cash flows of an entire company, we can use either the overall WACC or just the cost of one security (e.g., debt).
True or False?
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- In the discounted cashflow method, the discount rate is used for the following reasons EXCEPTa. it removes the timing differences of cashflows.b. it serves as the required rate of return of the asset being valued.c. it removes the expected riskiness of differing assetsd. it equalizes cash inflows to cash outflows so that the value would equal to the market value.arrow_forwardProvie The Correct Answer with calculationarrow_forwardWhat are the strenghts and weaknesses of the discount cash flow methods?arrow_forward
- Why do we use the market value of debt and equity to estimate WACC instead of the book value?arrow_forwardIs cash flow more reliable than accounting profit? Which one is more useful?arrow_forwardWhat is the traditional cash equivalency approach used to determine how below-market-rate loans affect value?arrow_forward
- Based on your understanding of the fAactors that affect the cost of money, Identify which of the following statement is true. a. higher inflation leads to lower interest rates. b. Interest is the price paid to borrow funds. c. Higher risk leads to lower interest rates.arrow_forwardA centerpiece of any study of finance is "valuation." A simple function, "V=l/R," can be used to describe an asset's "value." What does the "R" in that expression stand for? O a future cash flow O a current cash flow O a market-determined discount rate O a variable income measure O a measure of probabilityarrow_forwardI. Explain the tradeoff between the costs of having too much liquidity on the one hand and financial distress and insolvency on the other hand. II. What gives rise to, or causes, each. III. Give an example explaining both.arrow_forward
- The discounted payback method discounts cash flows at the opportunity cost of capital and then calculates the payback period. TRUE/FALSE?arrow_forwardWhy, in most cases, accrual-basis net income provides a better measure of perfomance than net operating cash flow?arrow_forwardA company’s current fi nancial position would best be evaluated using the:C . statement of cash fl ows.arrow_forward
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