QUESTION: 165

"The value of an asset is the present value of its expected returns. Specifically, you expect an asset to provide a stream of returns during the period of time you own it. To convert this estimated stream of returns to a value for the security, you must discount this stream at your required rate of return. This process requires estimates of (1) the stream of expected returns and (2) the required rate of return on the investment. Value today always equals future cash flow discounted at the opportunity cost of capital." This is actually:

Theory of valuation
Theoretical and practical soundness of the valuation approach
Return on investment
Leverage ratios

Answer(s): A

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QUESTION: 166

For valuation purposes, the measurement of economic income to be analyzed can be defined in several different ways. Different measurements of economic income that are commonly analyzed in this approach include the following EXCEPT:

Payouts (e.g. dividends, interest, security sales proceeds, or partnership withdrawals)
Cash flow (often measured as net cash flow)
The discount rate
Some measure of accounting earnings (often net income or net)

Answer(s): C

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QUESTION: 167

The basic valuation model, which is central to the income approach to valuation, has only two variables. Which of the following is/are NOT out of those variables?

The amount of the expected prospective economic income in each period
The required rate of return (yield rate) by which the expected prospective economic income receipts should be discounted
Common equity
Economic income measured

Answer(s): C,D

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