Do you agree with some of the answers in Qbank? some of them dont even make sense to me.

This is an example, If we know the forecast growth rates for a firm’s dividends and the current dividends and current value, we can determine the: A) net margin of the firm. B) sustainable growth rate. C) required rate of return. Your answer: B was incorrect. The correct answer was C) required rate of return. Just as we can determine the current value of the shares from the current dividends, growth forecasts and required return, we can solve for any one of them if we know the other three factors. For C to be correct, we must assume constant dividend growth and and GGM, if so, we could also calculate the sustainable growth rate from D1/D0 to get (1+g).

I think c is right. Because you know the Stock price (current value), dividend in t1 (=dividend in t0 * (1+g)). Now solve for r S=D1/(r-g)

thats is assuming D1=D0 (1+g), i am not saying C is incorrect.

the wording of the question is awkward.

With the focus on wording i agree with you. I will hope the CFAI will give us clear questions

It tells you in the question that we know the forecast growth rate of the dividend…you don’t need to ‘assume’ anything that’s not provided in this question… C is the answer GIVEN what’s provided in the question.

what about this one ? Which of the following is least likely one of the differences between FCFE and FCFF? FCFF includes adjustments to revenue for: A) working capital investment. B) interest payments to bondholders. C) operating expenses. Your answer: C was incorrect. The correct answer was B) interest payments to bondholders. FCFF includes the cash available to all of the firm’s investors, including bondholders. Therefore, interest payments to bondholders are not removed from revenues to derive FCFF. FCFE is FCFF minus interest payments to bondholders plus net borrowings from bondholders. (Study Session 12, LOS 42.a, b) i understand FCFE does not include interest payment, but the question asks “least likely”. besides, its not the full interest payment, but the aftertax amount of interest payment.

I don’t know I got them both right and they made sense to me. Not bragging just saying they made sense

could you explain the second one please? i get the first one

It’s adjustments to revenue, not net income. For FCFF, interest expense is not subtracted from revenues, but for FCFE it is.

so interest adjustment from revenue is different for FCFF and FCFE because revenue includes interest? but it is asking for least likely tho.

grumble Wrote: ------------------------------------------------------- > It’s adjustments to revenue, not net income. For > FCFF, interest expense is not subtracted from > revenues, but for FCFE it is. No adjustments are made to revenues. Izen5, thats’s why B is the correct answer because it is not a difference b/w FCFF and FCFE.