Course Catalog > Stocks > 400
Stocks 403: Introduction to Discounted Cash Flow

Test your knowledge

Choose wisely. There is only one correct answer to each question.

0%
Keep studying!
Review your answers below to learn more.
1.
For the purpose of discounting a company's future cash flows, the term "cost of capital" means _______.
Choose wisely. There is only one correct answer.
The rate used to discount the company's future cash flows backward to the present. The math will explain how it figures into the cash flows.
2.
The concept of perpetuity value involves estimating a company's future cash flows for a certain period and then estimating the value of all cash flows after that in what form?
Choose wisely. There is only one correct answer.
One lump sum. The perpetuity value will be expressed in one lump sum, then discounted for its present value.
3.
Which cost is easier to calculate?
Choose wisely. There is only one correct answer.
The cost of debt. The cost of debt boils down to the interest rate a company pays to borrow money. But the cost of equity is debatable and uses more factors.
4.
When it comes to finding a stock's intrinsic value, what is the problem with simply counting up all the future dividend payments a company is expected to make and expressing them in today's dollars?
Choose wisely. There is only one correct answer.
Some companies do not pay dividends. That is why cash flow is used.
5.
When calculating discounted cash flow, why are we discounting it at all?
Choose wisely. There is only one correct answer.
Because the further out a cash flow is, the less it is worth in today's dollars. The math will bear this out.