Question 1

One of the shortcomings of the percent of sales method is that it does not account for the fact that capacity changes are lumpy and not incremental.

Accepted Answer

A) True 
 B)False

Question 2

Compute the value of a firm with free cash flows of $9,000, $7,000, and $5,000 over the next three years, a terminal firm value of $30,000 after three years, and the unlevered cost of capital is 10%. Assume that the interest rate tax shield is zero.

Accepted Answer

A) $36,109 
B) $37,098 
C) $38,745 
D) $40,263 
A) $36,109 
B) $37,098 
C) $38,745 
D) $40,263

Question 3

Is total net working capital or incremental net working capital more relevant for calculation of free cash flow?

Accepted Answer

When calculating free cash flows from ea

Question 4

The goal of the financial manager is to maximize the value of the shareholders' stake in the firm.

Accepted Answer

A) True 
 B)False

Question 5

Compute the after-tax interest expense for a firm with Interest on Excess Cash = $5,000, Interest on Debt = $8,000, and a tax rate of 30%.

Accepted Answer

A) $2,100 
B) $2,200 
C) $2,500 
D) $2,700 
A) $2,100 
B) $2,200 
C) $2,500 
D) $2,700

Question 6

How do we compute net new financing?

Accepted Answer

Net new financing is computed

Question 7

LG Inc. has done a long-term forecast of its balance sheet. The projected total assets for the next year are $100 million. The current liabilities are projected to be $40 million and other long term liabilities are $30 million. How much net new financing is needed in the following year?

Accepted Answer

A) $18 million 
B) $22 million 
C) $25 million 
D) $30 million 
A) $18 million 
B) $22 million 
C) $25 million 
D) $30 million

Question 8

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

Question 9

Calgary Doughnuts had sales of $200 million in 2007. Its cost of sales were $160 million. If sales are expected to grow at 10% in 2008, compute the forecasted costs using the percent of sales method.

Accepted Answer

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

Question 10

What is the implied assumption in percent of sales method?

Accepted Answer

The percent of sales method as

Question 11

Use the tables for the question(s)below.
Pro Forma Income Statement for Ideko, 2010-2015   Pro Forma Balance Sheet for Ideko, 2010-2015  
-The amount of net working capital for Ideko in 2010 is closest to ________.

Accepted Answer

A) $26,200 
B) $35,195 
C) $30,510 
D) $29,420 
A) $26,200 
B) $35,195 
C) $30,510 
D) $29,420

Question 12

Use the tables for the question(s)below.
Pro Forma Income Statement for Ideko, 2010-2015   Pro Forma Balance Sheet for Ideko, 2010-2015  
-Assuming that Ideko has an EBITDA multiple of 8.5, then the continuation EV/Sales ratio of Ideko in 2015 is closest to ________.

Accepted Answer

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

Question 13

With the proper changes it is believed that Ideko's credit policies will extend a 60 days credit period to accounts receivables. The forecasted accounts receivable for Ideko in 2013 is closest to ________.

Accepted Answer

A) $14,525 
B) $19,690 
C) 22,710 
D) $16,970 
A) $14,525 
B) $19,690 
C) 22,710 
D) $16,970

Question 14

A firm has $50 million in equity and $20 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) 9% 
B) 10% 
C) 11% 
D) 12% 
A) 9% 
B) 10% 
C) 11% 
D) 12%

Question 15

What are a firm's options when it generates more cash than planned?

Accepted Answer

The firm can use excess cash t

Question 16

The market size for Loppins is 80 million units. If SPI Inc. has a market share of 30% and the average sales price is $2 per Loppin, what is the dollar amount of sales of SPI?

Accepted Answer

A) $40 million 
B) $42 million 
C) $45 million 
D) $48 million 
A) $40 million 
B) $42 million 
C) $45 million 
D) $48 million

Question 17

A firm expects growth next year to be 10%. Its sustainable growth rate is 12%. Which of the following is true?

Accepted Answer

A) The firm will need to raise additional debt such that its debt to equity ratio will increase. 
B) The firm may be able to keep its debt to equity ratio the same by reducing dividends (assuming they are projected to be high enough). 
C) The firm will need to raise additional capital through a stock issue. 
D) The firm will have excess cash to increase dividends, pay back debt, or repurchase equity. 
A) The firm will need to raise additional debt such that its debt to equity ratio will increase. 
B) The firm may be able to keep its debt to equity ratio the same by reducing dividends (assuming they are projected to be high enough). 
C) The firm will need to raise additional capital through a stock issue. 
D) The firm will have excess cash to increase dividends, pay back debt, or repurchase equity.

Question 18

A services firm does all its business in cash only. The firm projects a cash balance of $3,000 in its account after all taxes and costs are paid. The owners plan to invest $8,000 and pay a dividend of $1000. How much net new financing is needed?

Accepted Answer

A) $4,000 
B) $5,000 
C) $6,000 
D) $7,000 
A) $4,000 
B) $5,000 
C) $6,000 
D) $7,000

Question 19

While the assets and accounts payable of a firm may reasonably be expected to grow with sales, ________ will not naturally grow with sales.

Accepted Answer

A) cash 
B) supplier credit 
C) long term debt 
D) cost of sales 
A) cash 
B) supplier credit 
C) long term debt 
D) cost of sales

Question 20

The ________ method assumes that as sales grow, many income statement and balance sheet items will grow, remaining the same percent of sales.

Accepted Answer

A) percent of income 
B) percent of liabilities 
C) percent of sales 
D) percent of assets 
A) percent of income 
B) percent of liabilities 
C) percent of sales 
D) percent of assets

Exam 18: Financial Modeling and Pro Forma Analysis

One of the shortcomings of the percent of sales method is that it does not account for the fact that capacity changes are lumpy and not incremental.

Compute the value of a firm with free cash flows of $9,000, $7,000, and $5,000 over the next three years, a terminal firm value of $30,000 after three years, and the unlevered cost of capital is 10%. Assume that the interest rate tax shield is zero.

Is total net working capital or incremental net working capital more relevant for calculation of free cash flow?

The goal of the financial manager is to maximize the value of the shareholders' stake in the firm.

Compute the after-tax interest expense for a firm with Interest on Excess Cash = $5,000, Interest on Debt = $8,000, and a tax rate of 30%.

How do we compute net new financing?

LG Inc. has done a long-term forecast of its balance sheet. The projected total assets for the next year are $100 million. The current liabilities are projected to be $40 million and other long term liabilities are $30 million. How much net new financing is needed in the following year?

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

Calgary Doughnuts had sales of $200 million in 2007. Its cost of sales were $160 million. If sales are expected to grow at 10% in 2008, compute the forecasted costs using the percent of sales method.

What is the implied assumption in percent of sales method?

Use the tables for the question(s)below. Pro Forma Income Statement for Ideko, 2010-2015 Pro Forma Balance Sheet for Ideko, 2010-2015 -The amount of net working capital for Ideko in 2010 is closest to ________.

Use the tables for the question(s)below. Pro Forma Income Statement for Ideko, 2010-2015 Pro Forma Balance Sheet for Ideko, 2010-2015 -Assuming that Ideko has an EBITDA multiple of 8.5, then the continuation EV/Sales ratio of Ideko in 2015 is closest to ________.

With the proper changes it is believed that Ideko's credit policies will extend a 60 days credit period to accounts receivables. The forecasted accounts receivable for Ideko in 2013 is closest to ________.

A firm has $50 million in equity and $20 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?

What are a firm's options when it generates more cash than planned?

The market size for Loppins is 80 million units. If SPI Inc. has a market share of 30% and the average sales price is $2 per Loppin, what is the dollar amount of sales of SPI?

A firm expects growth next year to be 10%. Its sustainable growth rate is 12%. Which of the following is true?

A services firm does all its business in cash only. The firm projects a cash balance of $3,000 in its account after all taxes and costs are paid. The owners plan to invest $8,000 and pay a dividend of $1000. How much net new financing is needed?

While the assets and accounts payable of a firm may reasonably be expected to grow with sales, ________ will not naturally grow with sales.

The ________ method assumes that as sales grow, many income statement and balance sheet items will grow, remaining the same percent of sales.

Corporate Finance and the Financial Manager

Introduction to Financial Statement Analysis

Time Value of Money: an Introduction

Time Value of Money: Valuing Cash Flow Streams

Interest Rates

Bonds

Stock Valuation

Investment Decision Rules

Fundamentals of Capital Budgeting

Stock Valuation: a Second Look

Risk and Return in Capital Markets

Systematic Risk and the Equity Risk Premium

The Cost of Capital

Raising Equity Capital

Debt Financing

Capital Structure

Payout Policy

Working Capital Management

Short-Term Financial Planning

Option Applications and Corporate Finance

Mergers and Acquisitions

International Corporate Finance

Leasing

Insurance and Risk Management

Corporate Governance

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