boken kap 5 del 5

Question 1

Q: How is the PE ratio related to the firm’s discount rate (R)?

Answer 1

A: The PE ratio is negatively related to the firm’s discount rate (R).

Question 2

Q: How is the equity´s risk or variability related to the firm’s discount rate (R)?

Answer 2

A: Positively related.

Question 3

Q: What is the multiples approach to valuation?

Answer 3

A: It involves identifying a firm’s peers, calculating their valuation multiples, averaging them, and using the benchmark multiple to value the firm.

Question 4

Q: How is Enterprise Value (EV) calculated?

Answer 4

A: EV = Debt + Equity - Cash and equivalents.

Question 5

Q: What are common EV multiples used for firm valuation?

Answer 5

A:
* EV/EBITDA
* EV/Operating Profit

Question 6

How is PE related to the equitys risk?

Answer 6

Negatively

Question 7

What happens If financial markets are efficient?

Answer 7

Similar companies will have similar values.

Question 8

Q: What is Free Cash Flow to the Firm?

Answer 8

A: FCFF = Cash flow from operations+Cash flow from investing (If interest is part of operations, add Net interest payment×(1−tax rate).)

Question 9

Q: How does the discount rate differ between the FCFF model and the dividend growth model?

Answer 9

• The FCFF discount rate reflects the risk of the entire firm.
• The dividend growth model’s discount rate reflects the risk of the firm’s equity.
• When a firm has no debt the discount rates will be the same.

Question 10

What three factors is a firm’s price-earnings ratio a function of?

Answer 10

a. The per-share amount of the firm’s valuable growth opportunities
b. the risk of the share price
c. the type of accounting method used by the firm.