SECTION A Answer any TEN questions in this section. Each question carries THE State 'true' or 'false', and briefly explain your answer. 1. All valuations are subjective. Answer any FOUR marks 2 The CAPM is untestable. 3. A firm with highly volatile cash flows can have low beta 4. A retailer's earnings show a strong seasonal pattern and hence its stock price will also demonstrate seasonality 5. Free Cash Flow to Firm (FCFF) and Free Cash Flow to Equity (FCFE) approaches produce different equity valuations 6. Depreciation equals capital expenditure in steady state. 7. Growth in earnings can be lower than the growth in earnings per share. 8. The Price to EBITDA ratio should not be used for relative valuation 9. For a firm in steady state, other things being equal, higher growth rate implies higher Price-to-Book ratio 10. The free cash flow to equity will always be higher than the net income. 11. Insteady state the payout ratio grows at the steady state growth rate. 12. Value of the option to delay a project is higher when there is more uncertainty about the project Page 2 of 8