This preview has intentionally blurred parts. Sign up to view the full document

View Full Document

Unformatted Document Excerpt

CHAPTER 11 CORPORATE VALUATION AND VALUE-BASED MANAGEMENT (Difficulty: E = Easy, M = Medium, and T = Tough) True/False Easy: (11.1) Corporate valuation model Answer: b Diff: E 1 . The corporate valuation model cannot be used unless a company doesnt pay dividends. a. True b. False (11.2) Free cash flows and valuation Answer: a Diff: E 2 . Free cash flows should be discounted at the firms weighted average cost of capital to find the value of its operations. a. True b. False (11.3) Value-based management Answer: b Diff: E 3 . Value-based management focuses on sales growth, profitability, capital requirements, the weighted average cost of capital, and the dividend growth rate. a. True b. False (11.5) Corporate governance Answer: b Diff: E 4 . Two important issues in corporate governance are (1) the rules that cover the boards ability to fire the CEO and (2)the rules that cover the CEOs ability to remove members of the board. a. True b. False Medium: (11.3) Return on invested capital and MVA Answer: b Diff: M 5 . If a companys expected return on invested capital is less than its cost of equity, then the company must also have a negative market value added (MVA). a. True b. False Chapter 11: Valuation and Value-Based Management Page 1 (11.5) Corporate governance Answer: b Diff: M 6 . A poison pill is also known as a corporate restructuring. a. True b. False (11.5) Stock options Answer: b Diff: M 7 . The CEO of DAmico Motors has been granted some stock options that have provisions similar to most other executive stock options. If DAmicos stock underperforms the market, these options will necessarily be worthless. a. True b. False (11.6) ESOP Answer: a Diff: M 8 . ESOPs were originally designed to help improve worker productivity, but today they are also used to help prevent hostile takeovers.... View Full Document

End of Preview

Sign up now to access the rest of the document