CFAI Practice: M06 — Equity Valuation: Concepts and Basic Tools

Source: CFAI CFA1 Equity Practice 2026 Total: 5 questions

Questions

Question 1

An analyst estimates a stock’s intrinsic value at 38. The stock is most likely:

  • A. Undervalued, and the analyst should consider buying
  • B. Overvalued, and the analyst should consider selling
  • C. Fairly valued, and no action is needed

Question 2

Which of the following valuation approaches uses the discounted value of expected future cash flows to estimate a stock’s value?

  • A. Present value models
  • B. Multiplier models
  • C. Asset-based models

Question 3

A stock has earnings per share of 60. Its trailing P/E ratio is closest to:

  • A. 4.0x
  • B. 15.0x
  • C. 24.0x

Question 4

Enterprise value (EV) differs from equity value because EV:

  • A. Excludes the value of debt
  • B. Is always lower than market capitalization
  • C. Represents the total value of the firm to all capital providers, including debt and equity holders

Question 5

Valuation based on liquidation value is most appropriate when a company:

  • A. Has strong growth prospects
  • B. Is expected to cease operations
  • C. Has stable and predictable cash flows