Question 1 : A capitalization rate is based on the relationship between a discount rate and future annual growth.
True
False
Question 2 : Risk free rate 5%
Return on the stock market 13%
Industry risk premium 2%
Size premium 5%
Specific company risk 3%
Expected growth rate 5%
Beta 1.3
What is the discount rate of ABC, Inc. using the adopted CAPM for closely held companies?
21.0%
23.4%
24.9%
25.4%
Question 3 : When selecting the rate of return, what term do most valuation analysts consider when selecting the Treasury Bond rate
3 months.
1 year.
10 year.
20 year.
Question 4 : Equity risk premia are calculated using the following equation: ERP = (RI*IRP) - IRP
True
False
Question 5 : ABC, Inc. participates in the widget production industry. The widget production industry has a price to earnings ratio of 5. ABC, Inc. expects continued growth to be 4%. Which of the following is correct?
ABC, Inc.'s capitalization rate is 24%.
ABC, Inc.'s discount rate is 20%.
ABC, Inc.'s capitalization rate is 20%.
ABC, Inc.'s discount rate is 16%.
Question 6 : Which of the following investments requires the highest rate of return?
Treasury bills.
Venture capital.
Small cap stocks.
Junk bonds.
Question 7 : Company's interest rate is 10%, and its tax rate is 35% with a long-term expected annual growth rate of 4%. The Company's total notes payable is $5,000,000, and its total stockholder's equity (book) is $7,000,000. The market value of equity equals twice its total debt. What is Company's capitalization rate using WACC assuming the cost of equity is 20%?
10.37%
11.50%
14.37%
15.50%
Question 8 : Private Co., Inc. has an unlevered beta of 1.2, debt of $4,000,000, equity of $12,000,000, a tax rate of 40%, and expected growth of 5%. What is Private Co., Inc.'s levered beta?
0.96
1.00
1.44
1.60
Question 9 : The Hamada formula is used to lever a beta 03) when going through a bankruptcy withdrawal.
True
False
Question Question 10 : Companies that are in bankruptcy or liquidation, have 5 year net income of less than zero, have negative book value of equity, or have debt to total capital greater than 80 percent are labeled as high financial risk
True
False
Question 11 : Which of the following is not a commonly used option pricing model?
LEAPs
Binomial
Merton
Black Scholes
Question 12 : A discount from net asset value is appropriate for the valuation of asset intensive companies.
True
False
Question 13 : For minority shareholders, there is a big difference between the value of voting and nonvoting stock
True
False
Question 14 : Which of the following is not a prerogative of control:
The ability to determine management compensation and perquisites
The ability to liquidate, dissolve, sell out, or recapitalize the company
The ability to initiate a shareholder oppression lawsuit
The ability to sell or acquire treasury shares
Question 15 : All of the following statements are true regarding the private or small company discount, except:
Small or private companies sell for higher multiples than larger companies.
A closely held company may be perceived as riskier because they do not make as much reliable information available to the willing buyer as public companies do.
Private companies may be less marketable because of the lack of an institutional following.
The private company discount may already have been considered in the selection of multiplies or capitalization rates and may be inappropriate.
Question 16 : The type of value estimate yielded by the guideline company method is:
Minority and marketable
Control and marketable
Minority and nonmarketable
Control or minority and marketable
Question 17 : In which situation is a blockage discount most appropriate?
In the valuation of a closely held company.
When 1,000,000 shares of a publicly traded stock are owned and can be sold without causing the price per share to drop.
When 10,000 shares of a publicly traded stock are owned and the sale will cause the price to decline due to the average share volume being 200 shares per day.
A blockage discount is not appropriate for any valuation.
Question 18 : If the control value equals $125 and the control premium equals 30%, the minority interest value would be?
$87.50
$95.00
$96.15
$125.00
Question 19 : C corporation shareholders can be taxed at both the corporate level and shareholder level upon liquidation.
True
False
Question 20 : Real estate investment companies, holding companies, and oil and gas interests will typically get a blockage discount.
True
False