$($Please answer all $4$ questions as they relate to one another$)$

Question $1.$ Publicly traded companies often accumulate cash that is usually invested in riskless, liquid securities that yield low returns. Which of the following is a good reason for punishing companies that hold cash $($by discounting the cash$)?$

A$.$ The cash earns a lower rate of return than the cost of equity.

B$.$ The cash earns a lower rate of return than investments in operating assets.

C$.$ Investors can earn a higher return on the cash, if it is returned to them.

D$.$ The company has a good track record on operating investments, and you are afraid that the company will not invest the cash.

Question $2.$ You have finished a discounted cash flow valuation of a company, discounting free cash flows to the firm at the cost of capital to arrive at a value of $$2$ billion. You have also valued individual assets on the company$$s balance sheet. Which of the following assets would you add to your estimated value to arrive at the value of the overall business?

A$.$ Goodwill of $$500$ million.

B$.$ Brand name value of $$300$ million

C$.$ Value of property, plant, and equipment of $$600$ million

D$.$ None of the above

Question $3.$ When valuing companies, we pay attention to the market price. Why?

A$.$ The information we extract from markets can improve our valuations. We can extract information on implied growth rates, risk and cash flows.

B$.$ Good investments come from market prices moving to an assets intrinsic value. Therefore, we need to understand the drivers of the market price and how$/$whether it will adjust to our estimated value over time.

C$.$ Markets are consistently wrong, we can outguess them consistently.

D$.$ A and B

Question $4.$ Discounted cash flow models and relative valuation models should in all cases deliver the same valuation.

A$.$ True

B$.$ False