CFIN 6 TEST QUESTIONS WITH ALL CORRECT ANSWERS
Which of the following statements are true about relevant cash flow valuations: a. they consider the target to be a going concern, b. they allow for the obligations to debt holders, c. no two investments can be analyzed using the same hurdle rate - A...
CFIN 6 TEST QUESTIONS
WITH ALL CORRECT
ANSWERS
Which of the following statements are true about relevant cash flow valuations: a. they
consider the target to be a going concern, b. they allow for the obligations to debt
holders, c. no two investments can be analyzed using the same hurdle rate - Answer- a
b and c
In order to use a cash flow in perpetuity as a residual value for an asset, it must be
reasonable assumed that the cash flow from that asset has leveled off (T/F) - Answer-
true
From the acquiror's perspective, the absolute maximum price that should ever be paid
for a target is: a. the liquidation price of the target's assets, b. the current market value
of the target's stock, c. the replacement cost of the target's assets, d. the PV of the
target's enhanced cash flows, discounted by the target's appropriate cost of capital -
Answer- d - the PV of the target's enhanced cash flows
Mergers are more difficult to evaluate than single-asset investments because: a. the tax
issues are less involved, b. there are more valuation methods, c. there are synergies
and purchase price negotiations - Answer- b and c
Valuations determine whether a merger is feasible; tax consequences and control
considerations help shape the resultant firm's legal structure (T/F) - Answer- true
The following should not influence managers to select marginal acquisitions:a.
synergies, b. justifiable prices, c. residual values - Answer- residual values
From an acquirer's perspective, the absolute extremes of a negotiating range in an
acquisition are defined by:
a. the target's book vale and the maximum dilution-free price,
b. the replacement cost of the firm's target assets and the present value of the target's
enhanced cash flows,
c. the justifiable price and the present value of the target's cash flows without synergies,
d. the justifiable price and the present value of the target's enhanced cash flows. -
Answer- justifiable price and enhanced cash flows
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