Question 1

A firm expects growth next year to be 12%. Its sustainable growth rate is 10%. 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 2

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 levered price-earnings ratio of Ideko in 2015 is closest to ________.

Accepted Answer

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

Question 3

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 4

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 5

Long term financial planning helps a financial manager in budgeting but has little to do with understanding how the business operates.

Accepted Answer

A) True 
 B)False

Question 6

When making long term plans, any increases in ________ and ________ reflect capital structure decisions that require managers to actively raise capital.

Accepted Answer

A)  debt, equity 
B)  debt, assets 
C)  assets, equity 
D)  current ratio, equity 
A)  debt, equity 
B)  debt, assets 
C)  assets, equity 
D)  current ratio, equity

Question 7

Use the table for the question(s) below.
Ideko Sales and Operating Cost Assumptions
  
-Based upon Ideko's Sales and Operating Cost Assumptions, what production capacity will Ideko require in 2008?

Accepted Answer

A)  1,702,000 units 
B)  1,323,000 units 
C)  1,504,880 units 
D)  1,914,000 units 
E)  1,115,000 units 
A)  1,702,000 units 
B)  1,323,000 units 
C)  1,504,880 units 
D)  1,914,000 units 
E)  1,115,000 units

Question 8

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 9

The estimate of a firm's value at the end of the forecast horizon using a valuation multiple is also called its ________.

Accepted Answer

A)  fixed value 
B)  payback value 
C)  terminal value 
D)  none of the above 
A)  fixed value 
B)  payback value 
C)  terminal value 
D)  none of the above

Question 10

Compute the after-tax interest expense for a firm with Interest on Excess Cash = $2,000, Interest on Debt = $7,000, and a tax rate of 30%.

Accepted Answer

A)  $2,500 
B)  $2,800 
C)  $3,100 
D)  $3,500 
A)  $2,500 
B)  $2,800 
C)  $3,100 
D)  $3,500

Question 11

What is the implied assumption in percent of sales method?

Accepted Answer

The percent of sales method as

Question 12

A firm has interest expense of $2,500 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)  $5,918 
C)  $5,268 
D)  $6,987 
A)  $5,744 
B)  $5,918 
C)  $5,268 
D)  $6,987

Question 13

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

Question 14

Compute the after-tax interest expense for a firm with Interest on Excess Cash = $1,000, Interest on Debt = $5,000, and a tax rate of 30%.

Accepted Answer

A)  $2,500 
B)  $2,800 
C)  $3,100 
D)  $3,300 
A)  $2,500 
B)  $2,800 
C)  $3,100 
D)  $3,300

Question 15

Building a model for long-term forecasting reveals points in the future where the firm will have ________.

Accepted Answer

A)  excess cash that can be used for dividends, debt repayment, or stock repurchases 
B)  cash needs that must be funded with external financing 
C)  a need for expanding property, plant and equipment to meet increases in capacity 
D)  all of the above 
A)  excess cash that can be used for dividends, debt repayment, or stock repurchases 
B)  cash needs that must be funded with external financing 
C)  a need for expanding property, plant and equipment to meet increases in capacity 
D)  all of the above

Question 16

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 sustainable growth rate?

Accepted Answer

A)  12% 
B)  13% 
C)  14% 
D)  15% 
A)  12% 
B)  13% 
C)  14% 
D)  15%

Question 17

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' depreciation for 2011.

Accepted Answer

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

Question 18

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 EV/Sales ratio of Ideko in 2015 is closest to ________.

Accepted Answer

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

Question 19

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 20

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

Exam 18: Financial Modeling and Pro Forma Analysis

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

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 levered price-earnings ratio of Ideko in 2015 is closest to ________.

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

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?

Long term financial planning helps a financial manager in budgeting but has little to do with understanding how the business operates.

When making long term plans, any increases in ________ and ________ reflect capital structure decisions that require managers to actively raise capital.

Use the table for the question(s) below. Ideko Sales and Operating Cost Assumptions -Based upon Ideko's Sales and Operating Cost Assumptions, what production capacity will Ideko require in 2008?

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

The estimate of a firm's value at the end of the forecast horizon using a valuation multiple is also called its ________.

Compute the after-tax interest expense for a firm with Interest on Excess Cash = $2,000, Interest on Debt = $7,000, and a tax rate of 30%.

What is the implied assumption in percent of sales method?

A firm has interest expense of $2,500 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.

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

Compute the after-tax interest expense for a firm with Interest on Excess Cash = $1,000, Interest on Debt = $5,000, and a tax rate of 30%.

Building a model for long-term forecasting reveals points in the future where the firm will have ________.

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 sustainable growth rate?

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' depreciation 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 EV/Sales ratio of Ideko in 2015 is closest to ________.

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.

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?

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

Filters

When making long term plans, any increases in and reflect capital structure decisions that require managers to actively raise capital.