Name:Nguyen Hoang Anh Duong

SNHU ID: 2706979

INVESTMENT ANALYSIS
Week 1 Quiz
Due Date: Saturday, January 6, 2024, by Midnight
Note: The answer is red color
1- The value of an investment is:
a- The present value of the cash flows on the investment.
b- Determined by investor perception about it.
c- Determined by supply and demand.
d- Often a subjective estimate, colored by the bias of the
analyst.
e- All of the above

2- There are many who claim that value is based on investor

perceptions, and perceptions alone, and that cash flows and
earnings do not matter. This argument is flawed because:
a- Value is determined by earnings and cash flows, and
investor perceptions do not matter.
b- Perceptions do matter, but they can change. Value must
be based on something more substantial.
c- Investors are irrational. Therefore, their perceptions
should not determine value.
d- Value is determined by investor perceptions, but it is
also determined by the underlying earnings and cash
flows. Perceptions must be based on reality.

3- You use a valuation model to arrive at a value of $20 for a

stock. The market price of the stock is $25. The difference
must be explained by:
a- A market inefficiency: the market is overvaluing the
stock.
b- The use of the wrong valuation model to value the
stock.
c- Errors in the inputs to the valuation model.
d- All of the above.

In the following problems, use an equity risk premium of 5.5

percent if none is specified.
4- Discounted cash flow based on the notion that the value of
an asset is the present value of the expected cash flows
 from that asset, discounted at a rate that reflects the
riskiness of those cash flows. Specify whether the following
statements about discounted cash flow valuation are true or
false, assuming that all variables are constant except for
the one mentioned:
a- As the discount rate increases, the value of an asset
increases. (True or False?). False
b- As the expected growth rate in cash flows increases,
the value of an asset increases. (True or False). True
c- As the life of an asset is lengthened, the value of
that asset increases. (True or False?). True
d- As the uncertainly about the expected cash flow
increases, the value of an asset increases. (True or
False?). False
e- An asset with an infinite life (i.e., it is expected to
last forever) will have an infinite value. (True or
False?). False

5- Provide at least two differences between IFRS and GAAP.

- Difference 1: GAAP is a framework based on legal
authority while IFRS is based on a principles-based
approach.
- Difference 2: GAAP is more detailed and prescriptive
while IFRS is more high-level and flexible.
6- List two myths about valuation.
- Myth 1: A valuation is an objective search for “true”
value.
- Myth 2: A good valuation provides a precise estimate of
the value.
7- Explain in one sentence two of the valuation methods we
studied:
- Method 1:Discounted cash flow valuation: In discounted
cash flow valuation, the value of an asset is the
present value of the expected cash flows on the asset.
- Method 2:Relative valuation: The value of any asset can
be estimated by looking at how the market prices
“similar” or ‘comparable” assets.
8- In one or two sentences, what information does the income
statement provide?
- Your Answer: How profitable is a firm? What did it earn
on the assets that it invested in? These are
fundamental questions we would like financial
statements to answer. Accountants use the income
 statement to provide information about a firm’s
operating activities over a specific time period.
9- In one or two sentences, what information does the balance
sheet provide?
- Your Answer: In short, the balance sheet is a financial
statement that provides a snapshot of what a company
owns and owes, as well as the amount invested by
shareholders.
10- In one or two sentences, what information does the cash
flow statement provide?
- Your Answer: The cash flow statement (CFS), is a
financial statement that summarizes the movement of
cash and cash equivalents (CCE) that come in and go out
of a company. The CFS measures how well a company
manages its cash position, meaning how well the company
generates cash to pay its debt obligations and fund its
operating expenses.