Answer Each question carries THREE marks. State true or false, and briefly explain your answer

. 1. A well-researched valuation is timeless.

2. Firms with same correlation with the market portfolio may not have the same beta.

3. Historical equity risk premium should be estimated using most recent data to reflect current conditions.

4. A firm with high growth rate could still destroy shareholder value.

5. Firms that do not pay dividends cannot be valued using the dividend discount model but can be valued using the residual income model.

6. A companys cost of debt is the contracted rate it pays on its outstanding debt.

7. Free Cash Flow to Equity can be less than net income.

8. An increase in stock price leads to lower implied cost of equity.

9. The dividend discount model will generally undervalue stocks relative to free cash flow to equity model.

10. Once a firm reaches steady state, the profit margins grow at the rate g.

11. The Price to EBITDA ratio should not be used for relative valuation.

12. It is easier to value firms using FCFF as it does not require information about leverage.