Valuation Models Use the Relationship Between Share Value, Future Cash

question 6

Multiple Choice

Valuation models use the relationship between share value, future cash flows, and the cost of capital to estimate these quantities for a given firm. Realistically, for a publicly traded firm, what can we reliably use such models to determine?
I. the firm's future cash flows
II. the firm's cost of capital
III. the firm's market price

• A) I only
• B) II only
• C) III only
• D) I and II

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Definitions:

Consolidated Net Income

The total net income of a parent company and its subsidiaries, after the elimination of inter-company transactions and balances.

Non-Controlling Interest

A minority stake in a company or subsidiary where the shareholder does not have control over company's policies or decisions.

Unrealized Profit

Profit earned on paper from an investment that has increased in value but has not yet been sold by the investor.

Consolidated SFP

The Consolidated Statement of Financial Position, which shows the financial position of a parent company and its subsidiaries as a single entity.