A discount rate and a capitalization rate

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1. The primary difference between a discount rate and a capitalization rate is:
a. Growth.
b. Cash flow vs. earnings.
c. Minority vs. control.
d. Pretax vs. after-tax earnings.

2. Which of the following would not require a normalization entry?
A. Excess owner's compensation
B. An extraordinary item
C. The sell of a discontinued business segment
D. An arm's length relative party transaction

3. You calculate a closely held company
A. Using the same techniques and methods as a publicly held company
B. Using the CAPM model
C. Differently than a publicly held company
D. By calculating Beta

4. Which statement is true?
A. A closely held company usually does not require normalization entries
B. Requires trend analysis to help determine a capitalization rate
C. Capitalization rates and discounts rates are exactly the same
D. Valuation uses only the last year's revenue to determine future revenue
5. Which statement is false?
A. It would be useful to ascertain the future economic forecast
B. You should examine related party transactions more closely than most other transactions
C. Closely held sister companies are generally more risky in a valuation engagement
D. All of the above are true

6, Which statement about beta is true?
A. Beta measures the risk of a company relative to the stock market in general
B. Beta is the difference between the risk free rate and the market rate
C. Beta is typically used in the valuation of a closely held company
D. Beta may or may not have to be used in the CAPM

Reference no: EM13681242

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