DISCOUNTED CASH FLOW
Statement 1 is true, statement 2 is
ANALYSIS QUIZ
Statement #1. Regardless of the type
of Free Cash Flow used in a
Discounted cash flow analysis, WACC
should always be used as the Discount
Rate. FALSE
Statement #2. The Levered Financial
Cash Flows are the appropriate cash
flows to forecast, and the WACC is the
correct discount rate.
a.Statement 1 is false, statement 2 is
true
b.Statement 1 is true, statement 2 is
false
c.Both statements are true
d.Both Statements are False
Statement #1. DCF Analysis can be
used to calculate the internal rate of
return (IRR) of an investment.
Statement #2. DCF Analysis requires
any comparable companies.
a.Statement 1 is false, statement 2 is
true
b.Statement 1 is true, statement 2 is
false
c.Both statements are true
d.Both Statements are False
Statement #1. In Excel, the XNPV
function uses specific dates that
correspond to each cash flow
discounted in the series.
Statement #2. The regular NPV
function assumes all time periods are
equal.
a.Statement 1 is false, statement 2 is
true
b.
false
c.Both statements are true
d.Both Statements are False
Statement # 1. A project's net present
value typically decreases as the
required rate of return increases.
Statement # 2. A short payback period
makes it practically certain that an
investment will have a positive net
present value.
a.Statement 1 is false, statement 2 is
true
b.Statement 1 is true, statement 2 is
false
c.Both statements are true
d.Both Statements are False
Annual payments are made by
perpetuity. The initial installment is for
$380, and subsequent payments rise
by $50 yearly until they are level at
$1,780.Using a 4% annual effective
interest rate as a starting point,
determine the value of this perpetuity.
a. $70
b. $85
c. $71
d. $72
Over a five-year period, companies A
and B produce the same total Free
Cash Flow. However, Company A
generates 90 %of its FCFs in the first
two years, whereas Company B
generates 20% in each year. Which
company would MOST likely have the
higher Terminal Value in a DCF
analysis under the same conditions?
a. Company A
b. Company B
c. Both have the same NPV
d. It depends on the discount rate -
you can't tell from the information
given
Over a five-year period, companies A
and B generate the same total Free
Cash Flow. However, Company A
generates 90% of its FCFs in the first
two years, whereas Company B
generates 20% in each year. Which
company would have the HIGHEST
Terminal Value in a DCF analysis
under the same conditions?
a. Company A
b. Company B
c. I can't say without more information.
d. Since the total FCFs for each are
the same, they would have the same
Terminal Value.
You are comparing two annuities that
pay 0.75 percent interest per month
and provide quarterly payments of
$2,500 for five years. Annuity A pays
on the first of each month, while
Annuity B pays on the last day of each
month. Which of the following
statements about these two annuities
is correct?
a.At the end of year five, these two
annuities have equal present values
but unequal future values.
b.These two annuities have identical
present values today and will have
identical future values at the end of
year five.
c.Annuity A's future value is less than
that of Annuity B.
d.Annuity B's present value is less
than that of Annuity A.
The amount of cash before it met its
financial obligations
A. Unlevered Free Cash Flow
B. Levered Free Cash Flow
C. Discounted Cash
It is an intrinsic value approach used to
value an investment by discounting the
estimated unlevered free cash flow
A. Comparable Analysis
B. Precedent Transactions
C. DCF Analysis
If the DCF is greater than the present
cost, the investment is _____
A. to hold the cash
B. Profitable
C. Discounted
_______ assumes that all cash flows
received are spread over equal time
periods whether years, quarters,
months, or otherwise.
a.Perpetual Growth
b.Time Adjusted Net Present Value
c. Exit Multiple
d. Regular Net Present Value
It assumes that a dollar today is worth
more than a dollar tomorrow.
A. Time Value of Money
B. Levered Free Cash Flow
C. Weighted Average Cost of Capital
If the DCF is lower than the present
cost, investors should rather hold the
cash
True or False Answer: True
DCF Analysis did not need to be
extremely detailed
True or False Answer: False