Q. 1 You are a novice investor in the stock market. To make your most informed choice in buying a publicly traded compan

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Q. 1 You are a novice investor in the stock market. To make
your most informed choice in buying a publicly traded company's
stock, what can you rely on, even though the future is impossible
to predict?
Select an answer:
Equity valuation is relatively easy as a way to accurately value
the shares of a company.
Using the discounted free cash flow model accurately predicts a
company's terminal year.
The market does most of the forecasting and growth rate work for
you.
Price-earnings valuation does not depend on any determinants of
value
Q.2 PowerCo is considering buying a used high-reach crane for
repairing overhead electrical power lines. Why would PowerCo use
the cost approach?
Select an answer:
Only the cost to buy, not the depreciation or salvage value, has
to be considered.
The cost approach lets the company compare the cost with buying
a new high-reach crane.
The cost approach includes the market price for similar
high-reach cranes.
The cost approach calculates the price an asset can be sold
at.
Q.3 When should you use a discounted cash flow analysis?
Select an answer:
only when price multiples are not available
whenever you are not concerned with future cash flows
as the first choice in valuing a business or an investment
only to verify the price multiples you have
Q. 4Your best friend is opening a florist shop that will set
itself apart by selling unique designs created by your friend. How
should you consider risk if you invest with your friend?
Select an answer:
You can rely on the novelty of the niche your friend carved out,
which will result in lowered risk.
You can depend on your friend's expertise and ideas, which will
keep your investment risk low.
You have to consider the risk associated with other investments
that you could make.
You have to consider how much the business depends on your
friend's continued involvement.
Q. 5 Why is the income approach considered the most difficult
valuation approach?
Select an answer:
It involves a number of distinct estimates to arrive at a
valuation.
It involves calculating different amounts of income in each
year.
It does not consider the opportunity cost lost from other
possible investments.
It ignores doing a discounted cash flow analysis.
Which types of changes in balance sheet accounts are considered
naturally occurring?
Select an answer:
items that change as the result of necessary long-term
planning
items that change as a result of an increase in annual sales
items that change because of a company's financing decisions
items that change as the result of overall inflation