Economic Profit and Valuation Concepts

Which of the following is not a time period in a valuation model?

• Planning Period

• Historical Period

• Budget Period

• Terminal

TSRs are the best external measure of performance for the company as a whole

• True

• False

What does the final calculation to get to economic profit?

• EBIT - WACC

• WACC * Total Capital

• EBIT - Capital Charge

• NOPAT - Capital Charge

Which of the following is an example of non-tangible capital?

• Patents

• Machinery

• Inventory

• Buildings

A business generating positive cash flow must be creating value

• True

• False

Economic profit margins are consistent across industries

• True

• False

A governing objective should NOT be...

• A single stand-alone goal

• Easily quantifiable

• Short-term focused

• Closely linked between internal and external objectives

What characteristics should you NOT look for when choosing a peer set?

• Similar financial profile

• Similar geographic segments

• Similar operating segments

• Stated in Proxy / Annual reports

A company's valuation reflects the complete picture of its performance

• True

• False

Having a negative economic profit margin means a company is underperforming

• True

• False