1. Financial ratios are employed in understanding the financial environment of corporations. Which one of the following is not a correct use of financial ratios?
Capture trends in the relationship among variables
Capture the risk inherent in the stock market
Capture the behavior of ratios across time
Comparison of ratios with similar ?rms
Comparison of relationships across ?nancial-statement line items
2. There are many ways to calculate the components of the WACC. Which of the following is not a valid methodology?
Net present value to find the cost of debt
Capital asset pricing model to find the cost of equity
Dividend growth model to find the cost of equity
Yield to maturity on existing debt to find the cost of debt
Yield to maturity on debt issued by comparable companies