Financial Modelling And Valuation MCQ With Answers

Q1. Which of the following is the valuation as of date?


A- As of a single point in time

B- Any time within one year

C- As of a single point in time or six months later


Correct Answer is A

Explanation:- The valuation date is always as of a specific point in time, which is usually a single day. A business valuation is a dynamic, not a static, process. Values fluctuate all the time, thus a value now may be significantly different from a value a year or even a few months from now. Estate tax appraisals are made as of the day of death or six months afterwards. However, this is solely applicable to estate tax. The date on which the analyst signs the report is not always the same as the as of date. The signing date is usually following the valuation date.
 

Q2. Which of these are standards of value?


A- Fair value investment reporting, fair value state actions, intrinsic value

B- Fair market value, equal value, investment value

C- Fair market value, fair value financial reporting, and investment value


Correct Answer Is C

Explanation:- Fair market value, fair value financial reporting, and investment value. There are five standards of value: fair market value, investment value, intrinsic value, fair value financial reporting, and fair value state actions
 

Q3. Which industry outlook elements are most essential in supporting valuation assumptions?


A. Growth rates, profit margins, and risk

B. Legal issues and Regulatory issues

C. Minority discounts and/or control premiums


Correct Answer Is A

Explanation:- When accessible and available, industry data should be linked to the valuation assumptions for growth rates, profit margins, and risk considerations. Regulatory and legal issues are equally crucial, but only far as they impact growth, earnings, and dangers. Discounts and premiums are two distinct challenges.
 

Q4. Which of these factors can causes the cost of debt to be tax-affected?


A. Debt principal is tax deductible.

B. Interest expense is tax deductible.

C. It should not be tax-affected since equity is not tax-affected.


Correct Answer Is B

Explanation:- Interest expense is tax deductible. Principal is never tax deductible for a corporation (ESOP exception). Since interest expense is a cost of debt and is tax deductible, an adjustment for taxes is appropriate.
 

Q5. When using the guideline public company method, at what point in time are the prices of the public companies’ stock valued?


A. 30-day average

B. As of valuation date

C. Six-month average


Correct Answer Is B

Explanation:- On the valuation date According to valuation theory, the value should be at a single moment in time, often as of a single day. The stock price should be used on the day of valuation, regardless of the date. Some analysts calculate multiples by dividing the current price by a forecasted income or cash flow figure. They feel that this multiple better represents the stock's price to the company's expected success. This requires impartial expected income or cash flow that is fair.
 


Q6. Which of two economic indicators are probably the most important in valuation?


A. Unemployment levels and gross domestic product (GDP)

B. Inflation and unemployment levels

C. GDP and inflation


Correct Answer Is C

Explanation:- GDP and inflation Although all economic indicators are important, the two most important are often past and expected changes in GDP, which indicates real US economic growth, and inflation, which is typically measured by changes in the Consumer Price Index. These two elements have an impact on all industries and can influence growth rates in the income approach's discounted cash flow and capitalized cash flow approaches.
 

Q7. What is the most important use of historical financial data?


A. To determine how the company has performed

B. To assist in supporting anticipated performance

C. To highlight profitability


Correct Answer is B

Explanation:- All of the topics described below are critical components of a financial data historical assessment. However, when applicable, the primary goal of the historical evaluation is to support expected performance and the assumptions in the valuation models. The review of a company's historical operating performance indicates how well the management team is performing overall and can lead to information about trends.
 

Q8. Which of the method are considered valid under the income approach?


A. Guideline public company method

B. Discounted cash flow method and capitalized cash flow method

C. Excess cash flow method and Capitalized cash flow method


Correct answer is B

Explanation:- The discounted cash flow method and the capitalized cash flow approach are two methods for calculating cash flow. The income strategy uses two basic methods: discounted cash flow and capitalized cash flow. These two strategies are not mutually exclusive. The market technique is used for the guideline public business method, and the excess cash flow method is a mix of the income and asset approaches.
 

Q9. Which of the following is a long-term asset?


A. Goodwill

B. Accounts payable

C. Accounts receivable


Correct Answer Is A

Explanation:- Goodwill, defined as the value paid in excess of an asset's book value, is a long-term asset. Short-term assets and liabilities are the other options.
 

Q10. How long is the typical DCF projection period?


A. 1 year

B. 3 years

C. 5 years


Correct Answer Is C

Explanation:- FCF is projected over a five-year period, although it is subject to the target's sector, stage of development, and predictability of financial performance. It is crucial to forecast FCF to a point in the future when the target's financial performance has stabilized. For mature enterprises in established industries, five years is frequently enough to allow a company to attain a stable state and usually spans at least one business cycle.

Read What is DCF, How to calculate DCF and What are the pros and cons of DCF




Note: Above questions are only for practice purpose. Analyst Interview does not take guarantee and accuracy of the questions. Please read Disclaimer and FAQ.

Read Related Concept

(DCF) Discounted Cash Flow Analysis

What is Beta

Enterprise Value

Free Cash Flow to Firm (FCFF)

Terminal Value

Weighted Average Cost of Capital (WACC)