When Consistent Assumptions Are Used, Estimated Equity Values Under the Enterprise

question 21

Multiple Choice

When consistent assumptions are used, estimated equity values under the enterprise and equity methods should be:

• A)the same for the two methods
• B)higher for the equity method
• C)higher for the enterprise method
• D)different for the two methods

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Definitions:

Basic Research

Fundamental research aimed at gaining a comprehensive understanding of basic principles and facts, rather than immediate commercial objectives.

Immediate Payoff

A benefit or reward that is received right away, without delay.

Society

A group of individuals living together in a more or less ordered community, sharing common traditions, institutions, and values.

Stock Split

Current shareholders are given some number (or fraction) of shares for each share owned. Thus, in a three-for-one split, each shareholder would receive three new shares in exchange for each old share, thereby tripling the number of shares outstanding. Stock splits usually occur when the stock price is outside of the optimal trading range.