Principles of Valuation: Conceptual Review

Which of the following best describes the Net Present Value (NPV)?

• The future value of an investment's cash flows.

• The difference between the present value of cash inflows and outflows.

• The rate at which the present value of an investment's cash flows equals its cost.

• The annual return on an investment.

What is the Internal Rate of Return (IRR)?

• The rate of return on the cash inflows and outflows.

• The rate at which an investment doubles in value.

• The annual interest rate on a loan.

• The rate of return on equity.

Which factor does NOT directly influence the monthly mortgage payment amount?

• Loan amount.

• Interest rate.

• Loan term.

• Property location.

Which of the following is NOT typically considered when setting the interest rate for a loan?

• Borrower's creditworthiness.

• Loan amount.

• Prevailing market rates.

• Borrower's gender.

If interest rates rise, what typically happens to bond prices?

• They rise.

• They fall.

• They remain unchanged.

• They fluctuate unpredictably.

Enterprise value is calculated as:

• Equity value + Debt - Excess Cash.

• Equity value - Debt + Excess Cash.

• Equity value + Debt + Excess Cash.

• Equity value - Debt - Excess Cash.

Which of the following is NOT subtracted from free cash flow to the firm (FCFF) to calculate free cash flow to equity (FCFE)?

• Capital expenditures.

• Debt repayment.

• Change in net working capital.

• Dividends paid.

The Price-to-Earnings (P/E) ratio is a type of:

• Liquidity multiple.

• Profitability multiple.

• Solvency multiple.

• Valuation multiple.

In a simple growing perpetuity DCF model, which of the following is NOT required?

• Growth rate.

• Discount rate.

• Number of years.

• Initial cash flow.

In the DCF model, a higher discount rate will:

• Increase the present value of future cash flows.

• Decrease the present value of future cash flows.

• Have no effect on the present value of future cash flows.

• Make the present value of future cash flows unpredictable.