Question 1

The sustainable growth rate assumes that the firm will raise no new debt financing.

Accepted Answer

A) True 
 B)False

Question 2

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 3

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 9.4, then the continuation unlevered price-earnings ratio of Ideko in 2015 is closest to ________.

Accepted Answer

A)  17.2 
B)  16.4 
C)  14.5 
D)  28.6 
A)  17.2 
B)  16.4 
C)  14.5 
D)  28.6

Question 4

Use the information about Billy's Burgers to answer the following question(s):
  
-Using the percent of sales method, and assuming 20% growth in sales, estimate Billy's Burgers' Accounts Receivable for 2011.

Accepted Answer

A)  $21.0 million 
B)  $25.2 million 
C)  $18.0 million 
D)  $21.6 million 
A)  $21.0 million 
B)  $25.2 million 
C)  $18.0 million 
D)  $21.6 million

Question 5

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 9.4, then the continuation enterprise value of Ideko in 2015 is closest to ________.

Accepted Answer

A)  $181.279 million 
B)  $152.799 million 
C)  $272.187 million 
D)  $301.684 million 
A)  $181.279 million 
B)  $152.799 million 
C)  $272.187 million 
D)  $301.684 million

Question 6

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 7

What is minimum required cash?

Accepted Answer

The minimum required cash repr

Question 8

Total working capital rather than changes in working capital has implications for cash flows.

Accepted Answer

A) True 
 B)False

Question 9

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

Question 10

What is the free cash flow to equity holders for a firm with free cash flow of $9,000, after-tax interest expense of $3,000, and an increase in debt of $1,000?

Accepted Answer

A)  $6,000 
B)  $7,000 
C)  $8,000 
D)  $9,000 
A)  $6,000 
B)  $7,000 
C)  $8,000 
D)  $9,000

Question 11

What is net new financing?

Accepted Answer

Net new financing is the amoun

Question 12

Long term financial planning allows a financial manager to understand the business by ________ between sales, costs, capital investments and financing.

Accepted Answer

A)  increasing the spread between 
B)  identifying linkages 
C)  decreasing the spread between 
D)  identify wastage 
A)  increasing the spread between 
B)  identifying linkages 
C)  decreasing the spread between 
D)  identify wastage

Question 13

Internal growth rate indicates whether a planned investment will increase or decrease firm value.

Accepted Answer

A) True 
 B)False

Question 14

Forecasting a balance sheet with percent of sales method requires two passes-a first pass to determine financing needs and a second pass that shows the sources and amounts of financing.

Accepted Answer

A) True 
 B)False

Question 15

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 the decrease in net working capital for Ideko in 2011 is closest to ________.

Accepted Answer

A)  $4,090 
B)  $4,685 
C)  $3,410 
D)  $5,230 
A)  $4,090 
B)  $4,685 
C)  $3,410 
D)  $5,230

Question 16

________ is the maximum growth rate a firm can achieve without resorting to external financing.

Accepted Answer

A)  Return on equity 
B)  Sustainable growth rate 
C)  Retention rate 
D)  Internal growth rate 
A)  Return on equity 
B)  Sustainable growth rate 
C)  Retention rate 
D)  Internal growth rate

Question 17

Building a model for long-term forecasting reveals points in the future where the firm will need ________ when retained earnings are not enough to fund planned future investments.

Accepted Answer

A)  external financing 
B)  stock dividends 
C)  dividend payments 
D)  mergers 
A)  external financing 
B)  stock dividends 
C)  dividend payments 
D)  mergers

Question 18

A services firm does all its business in cash only. The firm projects a cash balance of $4,000 in its account after all taxes and costs are paid. The owners plan to invest $7,000 and pay a dividend of $1,000. 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

Compute the value of a firm with free cash flows of $1,000, $2,500, and $3,000 over the next three years, a terminal firm value of $40,000 after three years, and the unlevered cost of capital is 15%. Assume that the interest rate tax shield is zero.

Accepted Answer

A)  $26,191 
B)  $27,234 
C)  $31,033 
D)  $39,343 
A)  $26,191 
B)  $27,234 
C)  $31,033 
D)  $39,343

Question 20

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

Exam 18: Financial Modeling and Pro Forma Analysis

The sustainable growth rate assumes that the firm will raise no new debt financing.

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.

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 9.4, then the continuation unlevered price-earnings ratio of Ideko in 2015 is closest to ________.

Use the information about Billy's Burgers to answer the following question(s): -Using the percent of sales method, and assuming 20% growth in sales, estimate Billy's Burgers' Accounts Receivable for 2011.

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 9.4, then the continuation enterprise value of Ideko in 2015 is closest to ________.

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?

What is minimum required cash?

Total working capital rather than changes in working capital has implications for cash flows.

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?

What is the free cash flow to equity holders for a firm with free cash flow of $9,000, after-tax interest expense of $3,000, and an increase in debt of $1,000?

What is net new financing?

Long term financial planning allows a financial manager to understand the business by ________ between sales, costs, capital investments and financing.

Internal growth rate indicates whether a planned investment will increase or decrease firm value.

Forecasting a balance sheet with percent of sales method requires two passes-a first pass to determine financing needs and a second pass that shows the sources and amounts of financing.

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 the decrease in net working capital for Ideko in 2011 is closest to ________.

________ is the maximum growth rate a firm can achieve without resorting to external financing.

Building a model for long-term forecasting reveals points in the future where the firm will need ________ when retained earnings are not enough to fund planned future investments.

A services firm does all its business in cash only. The firm projects a cash balance of $4,000 in its account after all taxes and costs are paid. The owners plan to invest $7,000 and pay a dividend of $1,000. How much net new financing is needed?

Compute the value of a firm with free cash flows of $1,000, $2,500, and $3,000 over the next three years, a terminal firm value of $40,000 after three years, and the unlevered cost of capital is 15%. 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?

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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