Consider the following statements: Statement 1: Analysts prefer using the arithmetic mean over using the geometric mean to compute the historical equity market risk premium. Statement 2: Analysts prefer using the long-term government bond yield over the short-term government bond yield as the risk-free rate when computing the historical equity market risk premium. Which of the following is most likely?

Select one:

a. Only Statement 1 is correct.

b. Only Statement 2 is correct.

c. Both statements are incorrect.

Which of the following is most likely regarding the Fama-French model?

Select one:

a. The smaller the company and the greater the book-to-market ratio, the greater the required return.

b. The larger the company and the lower the book-to-market ratio, the greater the required return.

c. The smaller the company and the lower the book-to-market ratio, the greater the required return.

Which of the following is not a factor used when forecasting with the FCFF and FCFE modeling techniques?

Select one:

a. Noncash charges

b. Pretax operating income

c. Investments in fixed and working capital