Q1. Which of the following explains the different results achieved by using the

Question

Q1.

Which of the following explains the different results achieved by using the DCF rather than the MV approach to valuation?

I. Market valuation is an extrinsic approach
II. The accuracy of market information can be compromised by a number of factors
III. DCF valuation captures all market information reliably

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

F. None of the above

Q2.

Which of the following statements is true concerning management buyouts?

I. Due to the potential for synergy, buyouts are usually more complicated to value than mergers
II. Asymmetric information may allow managers to make a more accurate estimate of the target firm's value
III. The target firm is rarely taken private after the buyout occurs

Select one:

A. I only

B. II only

C. I and II only

D. I and III only

E. II and III only

F. I, II, and III

Q3.

Which of the following is true regarding takeover valuation?

I. The bidding firm should always use its own cost of capital for status quo valuation of the target firm
II. It is important to avoid attributing the debt capacity of the bidder firm to the target firm when valuing the status quo value of the target firm
III. Nominal cash flows should be discounted at nominal rates, not at real rates, so as to avoid incorrectly valuing the target firm's cash flows

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

F. None of the above

Explanation / Answer

1)

Option B

I and II only

MV - use market information and comparable firms

DCF - completlely internal valuation

2)

Option E

II and III only

3)

Option D

II and III only

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