29) Competitive advantage (and possible a higher than industry market multiple v

Question

29) Competitive advantage (and possible a higher than industry market multiple valuation) is clear when one company has a solid

A) Advantage in debt to equity ratio

B) Board of Directors

C) P/E discount

D) History of discounting to gain market share

E) Solid customer lock-in base that provides residual earnings

30) If the Federal Reserve, in conjunction with several other major financial governors from around the world including Japan, Germany, and Britain, all decide to start major quantitative easing of interest rates, many large companies ____________ should go down over time:

A) Depreciation expense

B) Currency hedging cost

C) Weighted Average Cost of Capital

D) Interest rate policy

E) None of the above

Explanation / Answer

1. Competitive advantage a firm has over its competitors when the firm can retain customers compared to its competitors

Answer: E

2. Quantitative easing is introduction of new money into the system. This means interest rates go down, so Weighted Average Cost of Capital will go down over time

Answer: C

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