True of False? 1. In projecting financial statements, if the left side of the ba

Question

True of False?

1. In projecting financial statements, if the left side of the balance sheet (i.e., the total assets) is more than the right side of the balance sheet, the company will require additional financing.    

2. The real interest rate is the observed or stated interest rate.      

3. Common ways to estimate the terminal value for a venture include using a P/E ratio or other multiple applied to the target’s data, or to use a growth in perpetuity which involves dividing net income by the discount rate (C/R).      

Explanation / Answer

1) True. Inorder to balance the asset side, company needs additional financing to get the liabilities side increase and match the left side of the balance sheet.

2) False. Nominal interest rate is the observed interest rate. Real interest rate includes the inflation rate.

3) True. Terminal value is calculated with P/E ratio and dividing net income by discount ratio.

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