CFIN 6 Exam Practice Questions and
Answers
Project investments are generally less complicated than mergers because:
a. project investments rarely have tax implications,
b. project investments do not involve extensive qualitative evaluations,
c. the potential benefits of project investments are...
Legalities determine whether merger should occur; a valuation determines what form the
business combination shall be (T/F) - Answer✔✔-false
Unlike capital budgeting derivations, it is best when evaluating mergers to rely on a single
quantitative method: this ensures consistency (T/F) - Answer✔✔-false
book value is unlike liquidation value and replacement value because:
a. the latter two are market driven,
b. it depends more fully on accounting methods,
c. it is the maximal obtainable price in the seller's eyes - Answer✔✔-a and b
the weakest link in earnings valuation is - Answer✔✔-projecting the post-merger P/E
The earnings dilution method is not a valuation method at all; it merely establishes the
maximum price that the company can pay without experiencing a lower EPS next year -
Answer✔✔-true
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
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