The method of comparables is based on the \"law of one price,\" which means whic
ID: 2618302 • Letter: T
Question
The method of comparables is based on the "law of one price," which means which of the following?
Select one:
a. Similar assets should trade at the same multiple.
b. Similar assets should trade dissimilarly and open alpha opportunities.
c. Similar assets should be priced similarly.
Which of the following statements about free cash flow to equity (FCFE) relative to cash flow from operations (CFO) is untrue?
Select one:
a. It is calculated as CFO FCInv + Net borrowing.
b. Theoretically, it is the most suitable definition for free cash flow.
c. It may be less volatile than CFO.
Explanation / Answer
1. The method of comparables is based on the "law of one price," which means similar assets should be priced similarly.
2. FCFE can be more volatile than other cash flow measures because of the capital expenditures spending. Hence it might not be less volatile than CFO.