Reading 50: Security Analysis Using Value-Based Metrics - 2008, present, class, future, return

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1.The CFROI is the rate of return that equates the present value of the future:

A)   net cash flows to the gross cash investment.

B)   gross cash flows to the gross cash investment.

C)   gross cash flows and gross cash investments to the terminal value.

D)   gross cash flows and terminal value to the gross cash investment.

2.In determining the gross cash flow for use in computing the Cash Flow Return on Investment (CFROI), which of the following is NOT added to net income before extraordinary items:

A)   depreciation and amortization.

B)   present value of operating lease payments.

C)   interest expense.

D)   deferred taxes.

3.The “terminal value” used in the computation of the Cash Flow Return on Investment (CFROI) is equal to the:

A)   present value of the sum of all non-depreciating assets.

B)   sum of all non-depreciating assets.

C)   sum of the gross cash flows over the average life of the assets.

D)   the present value of the gross cash flows over the average life of the assets.

4.Which of the following statements about the CFROI method is FALSE? CFROI:

A)   is expressed as a rate of return.

B)   uses accounting data.

C)   concentrates on the value added from existing investments.

D)   is expressed in dollar terms.

5.In computing the Cash Flow Return on Investment (CFROI), accumulated goodwill amortization factors into the determination of the:

A)   gross cash flow.

B)   terminal value.

C)   gross cash investments.

D)   average life of the firm's assets.

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答案和详解如下：

1.The CFROI is the rate of return that equates the present value of the future:

A)   net cash flows to the gross cash investment.

B)   gross cash flows to the gross cash investment.

C)   gross cash flows and gross cash investments to the terminal value.

D)   gross cash flows and terminal value to the gross cash investment.

The correct answer was D)

The CFROI is the IRR-like discount rate that equates the present value of the future gross cash flows and terminal value to the gross cash investment.

2.In determining the gross cash flow for use in computing the Cash Flow Return on Investment (CFROI), which of the following is NOT added to net income before extraordinary items:

A)   depreciation and amortization.

B)   present value of operating lease payments.

C)   interest expense.

D)   deferred taxes.

The correct answer was B)

The present value of the operating lease payments is used in the calculation of the gross cash investments, not the gross cash flow.

3.The “terminal value” used in the computation of the Cash Flow Return on Investment (CFROI) is equal to the:

A)   present value of the sum of all non-depreciating assets.

B)   sum of all non-depreciating assets.

C)   sum of the gross cash flows over the average life of the assets.

D)   the present value of the gross cash flows over the average life of the assets.

The correct answer was B)

The non-depreciating assets are essentially a “terminal value” that will be left when all other assets are consumed.

4.Which of the following statements about the CFROI method is FALSE? CFROI:

A)   is expressed as a rate of return.

B)   uses accounting data.

C)   concentrates on the value added from existing investments.

D)   is expressed in dollar terms.

The correct answer was D)

The CFROI method is not expressed in dollar terms, rather it is stated as a percentage.

5.In computing the Cash Flow Return on Investment (CFROI), accumulated goodwill amortization factors into the determination of the:

A)   gross cash flow.

B)   terminal value.

C)   gross cash investments.

D)   average life of the firm's assets.

The correct answer was C)

Goodwill and accumulated goodwill amortization are part of the gross cash investments.