Q1. Which of the following can result in an increase in firm value? I. Reducing

Question

Q1.

Which of the following can result in an increase in firm value?
I. Reducing net capital expenditures on existing assets
II. Increasing the reinvestment rate of the firm
III. Improving operating margins on existing assets

Select one:

a. I only

b.  I and II only

c. I and III only

d.  II and III only

e. I, II, and III only

f. None of the above

Q2.

How does CFROI differ from the internal rate of return (IRR)?

I. CFROI uses both past and future cash flows to evaluate projects
II. CFROI is a rate of return, while IRR is a percentage
III. CFROI tends to fade toward the cost of capital over time

Select one:

A. I only

B. II only

C. III only

D. I and II only

E. I and III only

F. I, II, and II

Explanation / Answer

Answer is option A.

CFROI is a cash flow return on investment is a valuation model that assumes the stock market sets prices based on cash flow, not on corporate performance and earnings.

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