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Finance Valuation Quiz

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Questions and Answers

What are the three common approaches taken in finance for valuation?

Intrinsic valuation, fair valuation, and market valuation

Asset valuation, liability valuation, and investment valuation

Market valuation, historical valuation, and future valuation

Discounted cashflow valuation, relative valuation, and contingent claim valuation (correct)

What is a subjective exercise in finance?

Merger and acquisition transactions

Capital budgeting

Investment analysis

Valuation (correct)

What are some reasons for which valuations may be needed?

Market analysis, profit forecasting, asset management, risk assessment

Investment analysis, capital budgeting, merger and acquisition transactions, financial reporting (correct)

Product development, sales forecasting, employee performance evaluation, customer satisfaction

Tax planning, budget allocation, shareholder meetings, regulatory compliance

What are some common terms for the value of an asset or liability?

Market value, fair value, and intrinsic value Signup and view all the answers

In a business valuation context, what is used to determine the hypothetical price that a third party would pay for a given company?

Various techniques Signup and view all the answers

What does the dividend discount model (DDM) attempt to calculate?

The fair value of a stock irrespective of the prevailing market conditions Signup and view all the answers

What theory is the dividend discount model (DDM) based on?

The value of a company is the present worth of the sum of all of its future dividend payments Signup and view all the answers

What determines the value of a company according to the dividend discount model (DDM)?

The present worth of the sum of all of its future dividend payments Signup and view all the answers

If the value obtained from the DDM is higher than the current trading price of shares, what does it indicate?

The stock is undervalued and qualifies for a buy Signup and view all the answers

What does the DDM take into consideration when calculating the fair value of a stock?

Dividend payout factors and the market expected returns Signup and view all the answers