Question

25. Disaggregating ROA into its component parts highlights that the value of a firm depends critically on both turnover (ATO) and equity multiplier (EM). T/F 26. Disaggregating ROE into its component parts highlights that the value of a firm depends critically on both turnover (ATO) and profit margin on sales (PM). T/F 2| Page 27. Abnormal operating income growth (AOIG) is calculated as cum-dividend operating income plus normal operating income. T/F 28. Cum-dividend operating income = Operating income plus income on prior-year free cash flow, i.e., beginning-of-the-period free cash flow. T/F 29. Abnormal operating income growth (AOIG) is negative if Residual Operating Income (ReOI) is increasing on a year-to-year basis. T/F 30. According to the basic Free Cash Flow stock valuation model, the value an investor should assign to a share of stock is dependent on the length of time he or she plans to hold the stock. T/F 31. According to the basic FCF stock valuation model, the value an investor should assign to a share of stock is dependent on the length of time he or she plans to hold the stock. T/F 32. Return on Common Stockholders' Equity (ROCE) can be augmented by having financial leverage (FLEV), i.e., by introducing debt in a firm's capital structure regardless of whether there is a positive spread, i.e., RNOA > NBC; or a negative spread, i.e., RNOA < NBC, or no spread, i.e., RNOA = NBC. T/F 33. Return on Net Operating Assets (RNOA) will be greater that the Return on Operating Assets (ROOA) as long as a firm enjoys a positive operating leverage spread, OLSPREAD, and an operating liability leverage, OLLEV. T/F

          25. Disaggregating ROA into its component parts highlights that the value of a firm depends critically on
both turnover (ATO) and equity multiplier (EM).
T/F
26. Disaggregating ROE into its component parts highlights that the value of a firm depends critically on
both turnover (ATO) and profit margin on sales (PM).
T/F
2| Page
27. Abnormal operating income growth (AOIG) is calculated as cum-dividend operating income plus
normal operating income.
T/F
28. Cum-dividend operating income = Operating income plus income on prior-year free cash flow, i.e.,
beginning-of-the-period free cash flow.
T/F
29. Abnormal operating income growth (AOIG) is negative if Residual Operating Income (ReOI) is
increasing on a year-to-year basis.
T/F
30. According to the basic Free Cash Flow stock valuation model, the value an investor should assign to a
share of stock is dependent on the length of time he or she plans to hold the stock.
T/F
31. According to the basic FCF stock valuation model, the value an investor should assign to a share of
stock is dependent on the length of time he or she plans to hold the stock.
T/F
32. Return on Common Stockholders' Equity (ROCE) can be augmented by having financial leverage
(FLEV), i.e., by introducing debt in a firm's capital structure regardless of whether there is a positive
spread, i.e., RNOA > NBC; or a negative spread, i.e., RNOA < NBC, or no spread, i.e., RNOA =
NBC.
T/F
33. Return on Net Operating Assets (RNOA) will be greater that the Return on Operating Assets (ROOA)
as long as a firm enjoys a positive operating leverage spread, OLSPREAD, and an operating liability
leverage, OLLEV.
T/F

25. Disaggregating ROA into its component parts highlights that the value of a firm depends critically on
both turnover (ATO) and equity multiplier (EM).
T/F
26. Disaggregating ROE into its component parts highlights that the value of a firm depends critically on
both turnover (ATO) and profit margin on sales (PM).
T/F
2| Page
27. Abnormal operating income growth (AOIG) is calculated as cum-dividend operating income plus
normal operating income.
T/F
28. Cum-dividend operating income = Operating income plus income on prior-year free cash flow, i.e.,
beginning-of-the-period free cash flow.
T/F
29. Abnormal operating income growth (AOIG) is negative if Residual Operating Income (ReOI) is
increasing on a year-to-year basis.
T/F
30. According to the basic Free Cash Flow stock valuation model, the value an investor should assign to a
share of stock is dependent on the length of time he or she plans to hold the stock.
T/F
31. According to the basic FCF stock valuation model, the value an investor should assign to a share of
stock is dependent on the length of time he or she plans to hold the stock.
T/F
32. Return on Common Stockholders' Equity (ROCE) can be augmented by having financial leverage
(FLEV), i.e., by introducing debt in a firm's capital structure regardless of whether there is a positive
spread, i.e., RNOA > NBC; or a negative spread, i.e., RNOA < NBC, or no spread, i.e., RNOA =
NBC.
T/F
33. Return on Net Operating Assets (RNOA) will be greater that the Return on Operating Assets (ROOA)
as long as a firm enjoys a positive operating leverage spread, OLSPREAD, and an operating liability
leverage, OLLEV.
T/F

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