Question 1

What is minimum required cash?

Accepted Answer

The minimum required cash represents the minimum level of cash needed to keep the business running smoothly,allowing for the daily variations in the timing of income and expenses.

Question 2

Use this information for the following questions:
XYZ Corp has the following financial information:
Net income = $1 million
Debt = $5 million
Cost of debt = 4%
Depreciation = $50,000
Capital Expenditures = $100,000
Increase in NWC = $10,000
-XYZ plans to pay back $500,000 worth of debt this year.If the corporate tax rate is 25%,what is the free cash flow to equity?

Accepted Answer

A)  $940,000 
B)  $440,000 
C)  $1.09 million 
D)  $1.44 million 
E)  $1 million 
A)  $940,000 
B)  $440,000 
C)  $1.09 million 
D)  $1.44 million 
E)  $1 million B

Question 3

Calgary Doughnuts had sales of $200 million in 2015.Its cost of sales were $160 million.If sales are expected to grow at 10% in 2016,compute the forecasted costs using the percent of sales method.

Accepted Answer

A)  $160 million 
B)  $170 million 
C)  $173 million 
D)  $176 million 
E)  $180 million 
A)  $160 million 
B)  $170 million 
C)  $173 million 
D)  $176 million 
E)  $180 million D

Question 4

Compute the after-tax interest expense for a firm with Interest on Excess Cash = $1000,Interest on Debt = $5000,and a tax rate of 30%.

Accepted Answer

A)  $2500 
B)  $2800 
C)  $3100 
D)  $3300 
E)  $3500 
A)  $2500 
B)  $2800 
C)  $3100 
D)  $3300 
E)  $3500

Question 5

Use the table for the question(s) below.
Pro Forma Income Statement for Ideko, 2014-2019
  
-The sustainable growth rate assumes that the firm will raise no new debt financing.

Accepted Answer

A) True 
 B)False

Question 6

Based upon the average EV/EBITDA ratio of the comparable firms,if Ideko holds $6.5 million of cash in excess of its working capital needs,then Ideko's target market value of equity is closest to:

Accepted Answer

A)  $155 million 
B)  $157 million 
C)  $165 million 
D)  $191 million 
E)  $193 million 
A)  $155 million 
B)  $157 million 
C)  $165 million 
D)  $191 million 
E)  $193 million

Question 7

Granger Inc.has done a long-term forecast of its balance sheet.Total assets are projected to be $800,000 and other long-term liabilities are $300,000.If the firm expects to need $150,000 in net new financing,what are the projected current liabilities?

Accepted Answer

A)  $650,000 
B)  $150,000 
C)  $350,000 
D)  $450,000 
E)  $250,000 
A)  $650,000 
B)  $150,000 
C)  $350,000 
D)  $450,000 
E)  $250,000

Question 8

Calgary Doughnuts had sales of $100 million in 2015.Its cost of sales were $70 million.If sales are expected to grow at 20% in 2016,compute the forecasted costs using the percent of sales method.

Accepted Answer

A)  $80 million 
B)  $84 million 
C)  $88 million 
D)  $96 million 
E)  $102 million 
A)  $80 million 
B)  $84 million 
C)  $88 million 
D)  $96 million 
E)  $102 million

Question 9

Compute the value of a firm with free cash flows of $4000,$4500,and $5000 over the next three years,a terminal firm value of $60,000 after three years,and the unlevered cost of capital is 10%.Assume that the interest rate tax shield is zero.

Accepted Answer

A)  $56,191 
B)  $57,234 
C)  $58,098 
D)  $59,123 
E)  $61,431 
A)  $56,191 
B)  $57,234 
C)  $58,098 
D)  $59,123 
E)  $61,431

Question 10

Using the percent of sales method,and assuming 20% growth in sales,estimate Billy's Burgers' depreciation for 2016.

Accepted Answer

A)  $17.2 million 
B)  $50.8 million 
C)  $12.0 million 
D)  $20.6 million 
E)  $14.3 million 
A)  $17.2 million 
B)  $50.8 million 
C)  $12.0 million 
D)  $20.6 million 
E)  $14.3 million

Question 11

Compute the after-tax interest expense for a firm with Interest on Excess Cash = $2000,Interest on Debt = $7000,and a tax rate of 30%.

Accepted Answer

A)  $2500 
B)  $2800 
C)  $3100 
D)  $3500 
E)  $3900 
A)  $2500 
B)  $2800 
C)  $3100 
D)  $3500 
E)  $3900

Question 12

The amount of dividends a company pays will affect the ________ it has to finance future growth.

Accepted Answer

A)  debt 
B)  retained earnings 
C)  current liabilities 
D)  current ratio 
E)  inventories 
A)  debt 
B)  retained earnings 
C)  current liabilities 
D)  current ratio 
E)  inventories

Question 13

Assuming that Ideko has a EBITDA multiple of 9.4,then the continuation levered price-earnings ratio of Ideko in 2015 is closest to:

Accepted Answer

A)  17.2 
B)  14.5 
C)  19.0 
D)  16.4 
E)  15.6 
A)  17.2 
B)  14.5 
C)  19.0 
D)  16.4 
E)  15.6

Question 14

Use the table for the question(s) below.
Pro Forma Income Statement for Ideko, 2014-2019
  
-The amount of net working capital for Ideko in 2017 is closest to:

Accepted Answer

A)  $35,195 
B)  $26,420 
C)  $22,170 
D)  $30,510 
E)  $21,260 
A)  $35,195 
B)  $26,420 
C)  $22,170 
D)  $30,510 
E)  $21,260

Question 15

How do we know if expansion is a good idea for the firm?

Accepted Answer

We compare a firm's

Question 16

A services firm does all its business in cash only.The firm projects a cash balance of of $2000 in its account after all taxes and costs are paid.The owners plan to invest $5000 and pay a dividend of $1000.How much net new financing is needed?

Accepted Answer

A)  $4000 
B)  $5000 
C)  $6000 
D)  $7000 
E)  $8000 
A)  $4000 
B)  $5000 
C)  $6000 
D)  $7000 
E)  $8000

Question 17

Using the percent of sales method,and assuming 20% growth in sales and no change in interest expense,estimate Billy's Burgers' net income for 2016.

Accepted Answer

A)  $23.28 million 
B)  $35.76 million 
C)  $24.84 million 
D)  $28.16 million 
E)  $30.29 million 
A)  $23.28 million 
B)  $35.76 million 
C)  $24.84 million 
D)  $28.16 million 
E)  $30.29 million

Question 18

Assuming that Ideko has a EBITDA multiple of 9.4,then the continuation EV/Sales ratio of Ideko in 2015 is closest to:

Accepted Answer

A)  1.9 
B)  1.7 
C)  1.6 
D)  1.8 
E)  1.5 
A)  1.9 
B)  1.7 
C)  1.6 
D)  1.8 
E)  1.5

Question 19

A firm has $70 million in equity and $30 million of debt,it pays dividends of 30% of net income,and has a net income of $10 million.What is the firm's internal growth rate?

Accepted Answer

A)  6% 
B)  7% 
C)  8% 
D)  9% 
E)  10% 
A)  6% 
B)  7% 
C)  8% 
D)  9% 
E)  10%

Question 20

A firm has interest expense of $2500 each year for ten years.If the tax rate is 30% and the discount rate is 7%,compute the value of the interest rate tax shield.

Accepted Answer

A)  $5,744 
B)  $5918 
C)  $5268 
D)  $6987 
E)  $7212 
A)  $5,744 
B)  $5918 
C)  $5268 
D)  $6987 
E)  $7212

Exam 18: Financial Modelling and Pro Forma Analysis

What is minimum required cash?

Calgary Doughnuts had sales of $200 million in 2015.Its cost of sales were $160 million.If sales are expected to grow at 10% in 2016,compute the forecasted costs using the percent of sales method.

Compute the after-tax interest expense for a firm with Interest on Excess Cash = $1000,Interest on Debt = $5000,and a tax rate of 30%.

Use the table for the question(s) below. Pro Forma Income Statement for Ideko, 2014-2019 -The sustainable growth rate assumes that the firm will raise no new debt financing.

Based upon the average EV/EBITDA ratio of the comparable firms,if Ideko holds $6.5 million of cash in excess of its working capital needs,then Ideko's target market value of equity is closest to:

Granger Inc.has done a long-term forecast of its balance sheet.Total assets are projected to be $800,000 and other long-term liabilities are $300,000.If the firm expects to need $150,000 in net new financing,what are the projected current liabilities?

Calgary Doughnuts had sales of $100 million in 2015.Its cost of sales were $70 million.If sales are expected to grow at 20% in 2016,compute the forecasted costs using the percent of sales method.

Compute the value of a firm with free cash flows of $4000,$4500,and $5000 over the next three years,a terminal firm value of $60,000 after three years,and the unlevered cost of capital is 10%.Assume that the interest rate tax shield is zero.

Using the percent of sales method,and assuming 20% growth in sales,estimate Billy's Burgers' depreciation for 2016.

Compute the after-tax interest expense for a firm with Interest on Excess Cash = $2000,Interest on Debt = $7000,and a tax rate of 30%.

The amount of dividends a company pays will affect the ________ it has to finance future growth.

Assuming that Ideko has a EBITDA multiple of 9.4,then the continuation levered price-earnings ratio of Ideko in 2015 is closest to:

Use the table for the question(s) below. Pro Forma Income Statement for Ideko, 2014-2019 -The amount of net working capital for Ideko in 2017 is closest to:

How do we know if expansion is a good idea for the firm?

A services firm does all its business in cash only.The firm projects a cash balance of of $2000 in its account after all taxes and costs are paid.The owners plan to invest $5000 and pay a dividend of $1000.How much net new financing is needed?

Using the percent of sales method,and assuming 20% growth in sales and no change in interest expense,estimate Billy's Burgers' net income for 2016.

Assuming that Ideko has a EBITDA multiple of 9.4,then the continuation EV/Sales ratio of Ideko in 2015 is closest to:

A firm has $70 million in equity and $30 million of debt,it pays dividends of 30% of net income,and has a net income of $10 million.What is the firm's internal growth rate?

A firm has interest expense of $2500 each year for ten years.If the tax rate is 30% and the discount rate is 7%,compute the value of the interest rate tax shield.

Corporate Finance and the Financial Manager

Introduction to Financial Statement Analysis

The Valuation Principle: the Foundation of Financial Decision Making

The Time Value of Money

Interest Rates

Bonds

Valuing Stocks

Investment Decision Rules

Fundamentals of Capital Budgeting

Risk and Return in Capital Markets

Systematic Risk and the Equity Risk Premium

Determining the Cost of Capital

Risk and the Pricing of Options

Raising Equity Capital

Debt Financing

Capital Structure

Payout Policy

Working Capital Management

Short Term Financial Planning

Risk Management

International Corporate Finance

Leasing

Mergers and Acquisitions

Corporate Governance

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