Question 1

What is net new financing?

Accepted Answer

Net new financing is the amoun

Question 2

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

Accepted Answer

We compare a firm's value with

Question 3

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 4

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 5

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 2012 is closest to ________.

Accepted Answer

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

Question 6

A services firm does all its business in cash only. The firm projects a cash balance of $2,000 in its account after all taxes and costs are paid. The owners plan to invest $5,000 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 7

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 8

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 increase in net working capital for Ideko in 2012 is closest to ________.

Accepted Answer

A)  $4,685 
B)  $4,920 
C)  $3,665 
D)  $5,230 
A)  $4,685 
B)  $4,920 
C)  $3,665 
D)  $5,230

Question 9

If a firm is planning an expansion or changes in how it manages its inventory, long term financial planning can help determine the impact on the firm's ________.

Accepted Answer

A)  debt financing 
B)  capital investment 
C)  free cash flows 
D)  all of the above 
A)  debt financing 
B)  capital investment 
C)  free cash flows 
D)  all of the above

Question 10

Given the following data for a given period, compute the free cash flow to the firm:
Net Income = $12,000
After-tax Interest Expense = $2,000
Depreciation = $1,000
Increase in NWC = $2,000
Capital Expenditures = $1,000

Accepted Answer

A)  $10,000 
B)  $11,000 
C)  $12,000 
D)  $13,000 
A)  $10,000 
B)  $11,000 
C)  $12,000 
D)  $13,000

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
  
-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 12

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 13

Use the information about Billy's Burgers to answer the following question(s):
Billy's Burgers
  
-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 2011.

Accepted Answer

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

Question 14

________ is the amount of additional external financing needed to fund planned increases in assets.

Accepted Answer

A)  Net new financing 
B)  Equity issuance 
C)  Debt issuance 
D)  Preferred stock issuance 
A)  Net new financing 
B)  Equity issuance 
C)  Debt issuance 
D)  Preferred stock issuance

Question 15

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

Accepted Answer

A) True 
 B)False

Question 16

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 2012 is closest to ________.

Accepted Answer

A)  $35,195 
B)  $42,420 
C)  $22,170 
D)  $26,420 
A)  $35,195 
B)  $42,420 
C)  $22,170 
D)  $26,420

Question 17

Compute the value of a firm with free cash flows of $4,000, $4,500, and $5,000 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 
A)  $56,191 
B)  $57,234 
C)  $58,098 
D)  $59,123

Question 18

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 19

The percent of sales method relies on the idea that capacity increases are ________, even though in practice such increases are ________.

Accepted Answer

A)  incremental, lumpy 
B)  incremental, incremental 
C)  lumpy, incremental 
D)  lumpy, lumpy 
A)  incremental, lumpy 
B)  incremental, incremental 
C)  lumpy, incremental 
D)  lumpy, lumpy

Question 20

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

Exam 18: Financial Modeling and Pro Forma Analysis

What is net new financing?

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

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

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.

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 2012 is closest to ________.

A services firm does all its business in cash only. The firm projects a cash balance of $2,000 in its account after all taxes and costs are paid. The owners plan to invest $5,000 and pay a dividend of $1000. How much net new financing is needed?

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?

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 increase in net working capital for Ideko in 2012 is closest to ________.

If a firm is planning an expansion or changes in how it manages its inventory, long term financial planning can help determine the impact on the firm's ________.

Given the following data for a given period, compute the free cash flow to the firm: Net Income = $12,000 After-tax Interest Expense = $2,000 Depreciation = $1,000 Increase in NWC = $2,000 Capital Expenditures = $1,000

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 ________.

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%.

Use the information about Billy's Burgers to answer the following question(s): Billy's Burgers -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 2011.

________ is the amount of additional external financing needed to fund planned increases in assets.

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

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 2012 is closest to ________.

Compute the value of a firm with free cash flows of $4,000, $4,500, and $5,000 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.

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?

The percent of sales method relies on the idea that capacity increases are ________, even though in practice such increases are ________.

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

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

The percent of sales method relies on the idea that capacity increases are , even though in practice such increases are .