Discounted Cash Flows Study Guide Questions And Correct Answers

Will WACC be higher for a $5b or a $500m market cap company? {Ans: This is highly dependent upon if the capital structure is the same for both companies. If it is the same in terms of interest rates and percentages then it should be higher for the $500m company because it would typically be expected to outperform the large cap company. If it is not the same then it could go either way depending on much debt/preferred stock each one has and what its interest rates are.}Reversion {Ans: _______________ is the value of the investment at the end of the holding period.}Why would you use the Gordon Method over the multiples method {Ans: In banking, you almost always use the multiples method as it is much easier to get data on exit multiples since they are based on comparable companies.Picking a long term growth rate is always a shot in the dark. You might use the GGM if you have no good comparables.}Interest or Yield {Ans: Opportunity Cost is the amount of _______________ that a current amount of capital could earn if invested in another asset.}What is the relationship between debt and the cost of