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Economics
Finance
Chap 12 study quiz
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Terms in this set (36)
Techniques appraisers use to estimate market value vary from case to case, but at their heart, generally involve the calculation of the _______ value of future cash flows.
present
Accurate business _______ is a concern when a corporation contemplates selling securities to raise long-term funds.
valuation
The value of a business depends on its _______ earning power or cash flows.
future
The three factors that affect future earnings are the ______ of cash flows, timing of cash flows, and risk.
size
Financial managers determine the value of a business, a business asset, or an interest in a business by finding the present value of the expected ______ cash flows.
future
The calculation of a stock's value includes taking the sum of the present values of future ______ cash flow payments.
dividend
The _______ ______ ______model is a basic valuation model for a security that is expected to generate cash payments.
DCF
The DCF model values an asset by calculating the _____ of the present values of all expected future cash flows.
sum
In order to use the general valuation model to estimate the value of a complete business, one must _______ the cash flows expected to be generated by the business and discount them to the present using the required rate of return appropriate for the business.
forecast
When analysts value the current liability component of a complete business, they normally just read the value of the current liabilities from the firm's ______ sheet
balance
When analysts value a firm's _____-_____ debt obligations, they calculate the present value of the future cash flows that would accrue to the owner of the debt.
long term
Current liabilities are short-term obligations of a company that are _____ by agreement.
fixed
______ ____ ______represents the average rate of return on a bond if all promised interest and principal
payments are made on time and if the interest payments are reinvested at the interest rate given the price paid for the bond
Yield to maturity
When interest rates rise, the price of the bond ________.
decreases
A bond with a 10% coupon selling at par, has a YTM of ______.
10%
When the YTM is less than the coupon rate, the bond sells at a ____________.
premium
Because coupon interest payments occur at regular intervals throughout the life of the bond, those payments are an _______.
annuity
When a bond has a YTM greater than its coupon rate, it sells at a _____.
discount
The term kp = Dp/Pp is called the _____ on preferred stock.
yield
The yield on preferred stock can be calculated by dividing the amount of the periodic dividends by the market value _____ of the stock.
price
Cash payments from preferred stock dividends are scheduled to continue ______.
forever
The ______value of common stock is calculated as Assets minus Liabilities minus Preferred Stock.
book
Investment analysts often use a P/E model to value shares of ______ stock.
common
The constant dividend growth model assumes common stock dividends will be paid _______ and grow at a constant rate.
regularly
Common stock valuation is ______ by the fact that common stock dividends are difficult to predict compared with the interest and principal payments on a bond or dividends on preferred stock.
complicated
Common stock dividends can grow at ______ rates.
different
The constant growth dividend model is also know as the ______ growth model.
Gordon
Different procedures must be used to value ______ common stockholders' equity than are used to value one share of common stock.
total
The amount each common stockholder would receive if the firm closed, sold all assets and paid all liabilities and preferred stock and distributed the net proceeds to the common stockholders is the _____ value.
liquidation
One of the simplest ways to value total common stockholders' equity is to subtract the value of the firm's liabilities and preferred stock from the value of the firm's assets, which gives the firm's ______ value.
book
The dividend yield of common stock is the stock's ______ dividend divided by its current market price.
annual
The free cash flow model values the complete business as a part of the procedure to value its common ______.
equity
Although it is difficult to use the replacement value of assets method to value a complete business, the model can be quite useful for estimating the value of ______ assets in a business.
individual
The constant growth dividend model for common stock must be adjusted for those cases in which a company's dividend grows as a _______ rate that will not be sustained over time.
nonconstant
Free cash flows represent the ________ cash flows from business operations.
total
The value of any security is the _____ value of its future cash payments.
present
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