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LOS j: Discuss the single-stage (stable-growth), two-stage, and three-stage FCFF and FCFE models (including assumptions) and explain the company characteristics that would justify the use of each model.
Q1. Which of the following types of companies is the two-stage free cash flow to equity (FCFE) model best suited for? Companies:
A) with patents or firms in an industry with significant barriers to entry.
B) growing at a rate similar to or less than the nominal growth rate of the economy.
C) in high growth industries that will face increasing competitive pressures over time, leading to a gradual decline in growth to a stable level.
Q2. A three-stage free cash flow to the firm (FCFF) is typically appropriate when:
A) the required rate of return is less than the growth rate in the last stage.
B) growth is currently low and will move through a transitional stage to a final stage wherein growth exceeds the required rate of return.
C) growth is currently high and will move through a transitional stage to a steady-state growth rate.
Q3. Which of the following types of company is the E-Model, a three-stage free cash flow to equity (FCFE) Model, best suited for? Companies:
A) with patents or firms in an industry with significant barriers to entry.
B) growing at a rate similar to or less than the nominal growth rate of the economy.
C) in high growth industries that will face increasing competitive pressures over time, leading to a gradual decline in growth to a stable level.
Q4. The one-stage (stable growth) free cash flow models assume:
A) the required rate of return is less than the growth rate.
B) the required rate of return exceeds the growth rate.
C) a constant growth rate for n years and a high growth rate forever thereafter.
Q5. A firm in stable growth phase should have:
A) a required rate of return close to the market rate of return and capital expenditures that are not too large relative to depreciation expense.
B) a growth rate higher than that of the economy and a required rate of return that is greater than the market rate of return.
C) capital expenditures that are less than the depreciation expense.
Q6. In using FCFE models, the assumption of growth should be:
A) independent from the assumptions of other variables.
B) only consistent with the assumptions of capital spending and depreciation.
C) consistent with assumptions of other variables.
Q7. Which of the following statements about the three-stage FCFE model is most accurate?
A) There is a transition period where the growth rate is stable.
B) There is a final phase when growth rate starts to decline.
C) There is a transition period where the growth rate declines.
Q8. The stable-growth free cash flow to equity (FCFE) model is best suited for which of the following types of companies? Companies:
A) with patents that will not expire for 20 or more years.
B) growing at a rate similar or less than the nominal growth rate of the economy.
C) with significant barriers to entry.
Q9. The three-stage FCFE model might result in an extremely high value if:
A) the growth rate in the stable-period is too high.
B) the growth rate in the stable-period is equal to that of GNP.
C) the growth rate in the stable-period is too low.
Q10. Which of the following is most useful in analyzing firms that have high leverage and high growth?
A) Stable-growth free cash flow to the firm (FCFF) model.
B) Two-stage free cash flow to the firm (FCFF) model.
C) Two-stage free cash flow to equity (FCFE) model.
Q11. The stable-growth free cash flow to the firm (FCFF) model is most useful in valuing firms that:
A) have capital expenditures that are not significantly higher than depreciation.
B) are growing at a rate significantly lower than that of the overall economy.
C) have capital expenditures that are significantly higher than depreciation.
Q12. Which of the following statements regarding the FCFF models is most accurate? The two-stage FCFF model is more useful than the stable-growth FCFF model when the firm is growing at a rate:
A) significantly higher than that of the overall economy.
B) significantly lower than that of the overall economy.
C) not significantly higher than that of the overall economy.
Q13. A biotech firm is currently experiencing high growth and pays no dividends. One of their product patents is scheduled to expire in 5 years. This firm would be a good candidate for which of the following valuation models?
A) Single-stage free cash flow to equity (FCFE).
B) Two-stage dividend discount model (DDM).
C) Two-stage free cash flow to equity (FCFE).
Q14. Which of the following free cash flow to equity (FCFE) models is most suited to analyze firms in an industry with significant barriers to entry?
A) FCFE Perpetuity Model.
B) Two-stage FCFE Model.
C) Stable Growth FCFE Model.
Q15. Which of the following free cash flow to the firm (FCFF) models is most suited to analyze firms that are growing at a faster rate than the overall economy?
A) Two-stage FCFF model.
B) High growth FCFF model.
C) No growth FCFF model.
Q16. The two-stage FCFE model is suitable for valuing firms that:
A) have very high but declining growth rate in the initial stage.
B) are in an industry with significant barriers to entry.
C) have moderate growth in the initial phase that declines gradually to a stable rate.
Q17. The two-stage (stable growth) free cash flow to equity (FCFE) and free cash flow to the firm (FCFF) models typically assume:
A) the required rate of return is less than the growth rate in the last stage.
B) a high-growth rate for n years and then a constant growth rate forever thereafter.
C) the required rate of return equals the growth rate in the last stage. | 
发表于 2009-3-9 15:54
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