Multiple Choice Questions:
1. What area does the most common type of financial statement fraud by overstating assets involve?
a. Accounts receivable.
b. Inventories.
c. Securities.
d. Plant and equipment.

2. Which of these is the basis for the discounted income method estimate of the value of a business?
a. Accounting income.
b. Cash flows.
c. Both a and b.
d. Neither a nor b.

3. In applying the discounted income method, which of the following would not normally be used as a surrogate for economic income?
a. Dividends.
b. Free cash flow available to debt service.
c. Debt-free cash flow available to equity.
d. All of these could are normally used as a surrogate for economic income.

4. The capital asset pricing model would likely be most applicable to which of the following general valuation approaches?
a. Income.
b. Asset.
c. Market.
d. None of these.

5. In applying the capitalized income method, it is common to estimate discount rates and growth rates. Which of the following is true regarding the impact of errors in estimating these two numbers?
a. The impact of the estimation error will be the largest when the two numbers are farther from each other.
b. The impact of the estimation error will be the largest when the two numbers are the closest to each other.
c. The impact of the estimation error will be the largest when both numbers are relatively large.
d. The impact of the estimation error will be the largest when the both numbers are relatively small.