“1)
In discounted cash flow valuation, the value of an asset is the sum of the
_________ of expected future cash flows on the asset.
a.
Sum
b.
Present
value
c.
Future
value
d.
Terminal
value

2)
In
your own words, list three advantages and disadvantages of the DCF
method?

3)
In
your own words, list three advantages and disadvantages of the Relative
Valuation method?

4)
What
is the Net Present Value (NPV) of an investment project with an initial cost of
$6 million and positive cash flows of $1.6 million at the end of the year 1,
$2.4 million at the end of year 2, and $2.8 million at the end of year 3. Use
10% as the discount rate. Will you accept or reject this project?

5)
Suppose
Dexters target capital structure is as follows:

Wd=0.40 Wps=0.10 Wce=0.50;

Its
before-tax cost of debt is 8.0%, cost of equity is 12.0%, cost of preferred
stock is 8.4%, and the marginal tax rate is 40%. Calculate Dexters Weighted
Average Cost of Capital (WACC).

6)
Grammy
phone is a cellular firm that reported a net income of $50 million in the most
recent financial year. The firm had $1 billion in debt, on which it reported
interest expenses of $100 million in the most recent financial year. The firm
had depreciation of $100 million for the year and capital expenditures were
200% of depreciation. The firm had a cost of capital of 11%. Assuming that
there is no working capital requirement, and using a constant growth rate of 4%
in perpetuity, estimate the value of the firm. Also assume that the risk
premium is 5.5% and the tax rate is 40%.

7) Briefly explain in your own words
the difference between firm and equity valuation?

8)
What is terminal value, and how is
it estimated?1)
In
discounted cash flow valuation, the value of an asset is the sum of the
_________ of expected future cash flows on the asset.a.
Sumb.
Present
valuec.
Future
valued.
Terminal
value2)
In
your own words, list three advantages and disadvantages of the DCF
method?3)
In
your own words, list three advantages and disadvantages of the Relative
Valuation method?4)
What
is the Net Present Value (NPV) of an investment project with an initial cost of
$6 million and positive cash flows of $1.6 million at the end of the year 1,
$2.4 million at the end of year 2, and $2.8 million at the end of year 3. Use
10% as the discount rate. Will you accept or reject this project?5)
Suppose
Dexters target capital structure is as follows:Wd=0.40 Wps=0.10 Wce=0.50;Its
before-tax cost of debt is 8.0%, cost of equity is 12.0%, cost of preferred
stock is 8.4%, and the marginal tax rate is 40%. Calculate Dexters Weighted
Average Cost of Capital (WACC).6)
Grammy
phone is a cellular firm that reported a net income of $50 million in the most
recent financial year. The firm had $1 billion in debt, on which it reported
interest expenses of $100 million in the most recent financial year. The firm
had depreciation of $100 million for the year and capital expenditures were
200% of depreciation. The firm had a cost of capital of 11%. Assuming that
there is no working capital requirement, and using a constant growth rate of 4%
in perpetuity, estimate the value of the firm. Also assume that the risk
premium is 5.5% and the tax rate is 40%.7) Briefly explain in your own words
the difference between firm and equity valuation?
8)
What is terminal value, and how is
it estimated?”