Which of the following explains why relative valuation is preferred over intrinsic valuation? a. It requires the collection of data regarding similar firms, thus this method is time-consuming. b.It reflects historical costs that are grounded with facts and not based on assumptions c. Individuals with minimal accounting and finance knowledge can apply this method. d.It uses assumptions that are more cash-flow based.
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Which of the following explains why relative valuation is preferred over intrinsic valuation?
a. It requires the collection of data regarding similar firms, thus this method is time-consuming.
b.It reflects historical costs that are grounded with facts and not based on assumptions
c. Individuals with minimal accounting and finance knowledge can apply this method.
d.It uses assumptions that are more cash-flow based.
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Solved in 3 steps
- Historical cost accounting remains in use because of its practical advantages.Which of the following is NOT an advantage of historical cost accounting?i) Amounts of transactions are reliable and can be verified.ii) Amounts in the statement of financial position can be matched to amounts in the statement of cash flows.ii) It avoids the overstatement of profit which can arise during periods of inflation.iii) It provides fewer opportunities for creative accounting than systems of current value accounting.Why is the acid test ratio a more rigorous test of short-term solvency than the current ratio? A. The quick ratio eliminates prepaid expenses for the denominator.B. The quick ratio eliminates prepaid expenses for the numerator.C. The quick ratio eliminates inventories from the numerator.D. The quick ratio considers only cash and marketable investments as current assets.E. The quick ratio eliminates revenue from the numerator.Which of the following is not true? GAP analysis Ignores changes in the market value of assets and liabilities. GAP analysis Ignores time value of money. GAP analysis is easy to compute and can accurately predicts the exact losses or gains Gap analysis fails to capture non-interest revenue
- 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.Which of the following statements is false regarding the abnormal earnings approach to valuation? Multiple Choice The method uses earnings and equity book value numbers as direct inputs in the valuation process. The method uses the cost of capital as a fundamental economic benchmark. This approach produces results that are generally equivalent to the free cash flow model. This approach is based on the notion that the value of a company is driven primarily by the level of earnings.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.
- Give examples of finance/accounting activities that does not incur cost and doesn't sacrifice any resources? Defend your examples.Do solve asap True and False questions - Indicate True or False 1. A negative net present value is acceptable. 2. Sunk costs are relevant past expenditures. 3. The liquidity ratio tests the solvency of the company.Which of the following is a disadvantage of the average rate of return method? a. fails to consider the time value of money b. includes the amount of income earned over the entire life of the proposal c. emphasizes accounting income d. difficult to use
- I. Explain the tradeoff between the costs of having too much liquidity on the one hand and financial distress and insolvency on the other hand. II. What gives rise to, or causes, each. III. Give an example explaining both.Comment on the following statements with suitable example: i. The ratio return on assets has net income in the numerator and total assets in the denominator. Explain how each part of the ratio could cause return on assets to fall. ii. Explain how return on assets could decline, given an increase in net profit margin. iii. If quoted market prices are not available, a personal financial statement cannot be prepared. Comment.True or False Investment bankers and other valuation professionals often utilize relative valuation method Liquidity has an impact on value. The greater the liquidity, the greater the value.