Reference no: EM131942778

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

a) It depends on the purpose of the valuation

b) True

c) False

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

a) Partly true, partly false

b) True

c) False

3. 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.

a) False

b) True

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

a) True

b) False

5. 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.

a) False

b) Partly true, partly false

c) True