None Which of the following are common valuation mistakes (select all that apply)Exaggerating synergies and ignoring integration costsOverestimating the effects of incentivesUnderestimating capital intensityUsing too high of growth rate that exceeds the discount rate

Exaggerating synergies and ignoring integration costs: Synergies are often cited as a primary…

Answered: Which of the following are common…

Financial Reporting, Financial Statement Analysis and Valuation

8th Edition

ISBN:9781285190907

Author:James M. Wahlen, Stephen P. Baginski, Mark Bradshaw

Publisher:James M. Wahlen, Stephen P. Baginski, Mark Bradshaw

Chapter13: Valuation: Earnings-based Approach

Section: Chapter Questions

Problem 12QE

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Which of the following statements is false? (You may select more than one answer.)a. The total-cost and incremental-cost approaches to net present value analysis canoccasionally lead to conflicting results.b. The cost of capital is a screening mechanism for net present value analysis.c. The present value of a dollar increases as the time of receipt extends further intothe future.d. The higher the cost of capital, the lower the present value of a dollar received inthe future.
Which of the following is false about diversification? Select one or more: a. diversification only works when returns on investments move in different ways b. diversification results in higher Sharpe ratios c. diversification reduces risk d. diversification eliminates risk
Which of the following are disadvantages of the average accounting return (AAR)? More than one answer may be correct. Multiple select question. It ignores the time value of money. It uses an arbitrary benchmark cutoff rate. Its input data is not easily available. It is based on cash flows and market value.
If the internal rate of return (IRR) is less than the cost of capital, then the investment is acceptable. Group of answer choices True False
Which one of the following factors makes it difficult for financial analysts to use trend analysis? Multiple Choice Decreasing costs and prices. Deflation. An aging asset base. A relatively new asset base.
When npv is negative, the discount rate is greater than the actual return on investment. A. True B. False
Help
Give an example of a strength and a weakness of the accounting rate of return approach.
Ignoring differences in the useful lives of investments when evaluating capital expenditure alternatives A B с D cannot be addressed by adjusting cash flow assumptions of the proposals can distort present value analysis and adversely affect decisions will never distort present value analysis or adversely affect decisions reduces complexity and improves decision making
Relative valuation has several disadvantages. Which of the following is NOT? a. There is the potential to provide inconsistent estimates arising from using different price ratios. b.Relative valuation is affected by the market mood such as when the comps is overvalued, the resulting valuation of the object will be a lower estimate. c. When applying relative valuation, the analyst may remove nonrecurrring income and loss items such as loss from sale of a cash-generating unit; this will improve the valuation process at the expense of time required.d.When biased stock brokers prepare relative valuation reports, it is likely that they will choose a price ratio that will encourage investors to buy stocks.
Practice : a: The computation of return on average investment ignores one characteristic of the earnings stream, which is considered in discounting cash flows. What is this characteristic? Why is it important? b: What are the disadvantages of evaluating an investment using payback period? Why might a company use this methodology despite these disadvantages?
An abnormal return occurs: Only when the actual return is lower than the expected return. Only when the actual return is higher than the expected return. Only when the market value is higher than the intrinsic value. Only when capital appreciation exceeds the expected capital appreciation. Should not be discussed because the word “abnormal” might be hurtful to someone.

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Which of the following are common valuation mistakes (select all that apply) Exaggerating synergies and ignoring integration costs Overestimating the effects of incentives Underestimating capital intensity Using too high of growth rate that exceeds the discount rate