1

There is fundamental difference between the value created by the real assets of a firm (that is, from the products and services created) and value provided by the fact that interest payments on debt are tax deductible.

True

False

2

Identifying the right comparable firms is a critical step in figuring out the value of a new idea or even an existing firm?

It depends on the purpose of the valuation

True

False

3

The cost of capital to be used in valuing a company in most cases is affected by the capital structures of the comparable firms.

Partly true, partly false

True

False

4

Once you have identified an appropriate set of comparables, you only need to estimate the average cost of equity of the comparables to figure out the value of the firm you are analyzing.

False

True

5.

Given that the interest payments on debt are tax deductible, firms have an incentive to borrow.

True

False

6.

Taking on a lot of debt will increase the cost of debt because the debt will face higher chances of default. In leveraged buyouts (where debt can be close to 90% of the value of the firm) private equity firms (who have equity investments in such deals) insist on a quick payoff of debt because the return on equity is lower than the cost of debt.

False

Partly true, partly false

True

Answer rating: 100% (QA)

1 TRUE Although they are lumped together as tangible assets real assets are a separate and distinct asset class from financial assets Unlike real assets which have intrinsic value financial assets der... View the full answer