Question 1

A firm forecasts its free cash flow will be $100,000 one year from today.Free cash flows are expected to grow at 4% for the following 4 years.At the forecast horizon,the firm's growth results in an EBITDA forecast of $650,000.If its EBITDA multiple is 11 and the discount rate is 6%,what is the value of the firm?

Accepted Answer

A)  $6.6 million 
B)  $5 million 
C)  $5.8 million 
D)  $5.3 million 
E)  $4.9 million

Question 2

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% 
E)  16%

Question 3

What is the major shortcoming of the percent of sales method for firms experiencing rapid growth?

Accepted Answer

The answer of What is the major shortcoming of the...

Question 4

Why is EBITDA multiple used for valuation rather than sales or earnings?

Accepted Answer

The answer of Why is EBITDA multiple used for valuation...

Question 5

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 2015 is closest to:

Accepted Answer

A)  $22,750 
B)  $35,195 
C)  $30,510 
D)  $26,420 
E)  $29,330

Question 6

Net new financing that we need to equate the assets and liabilities is also called the "plug."

Accepted Answer

A) True 
 B)False

Question 7

A firm has ROA of 12%,ROE of 20%,and a retention rate of 40%.What is the firm's internal growth rate?

Accepted Answer

A)  20% 
B)  12% 
C)  4.8% 
D)  8% 
E)  7.2%

Question 8

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

Accepted Answer

The answer of Is total net working capital or incremental...

Question 9

What is net new financing?

Accepted Answer

The answer of What is net new financing?...

Question 10

What is the implied assumption in percent of sales method?

Accepted Answer

The answer of What is the implied assumption in percent...

Question 11

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 
E)  income tax

Question 12

Assuming that Ideko has a EBITDA multiple of 8.5,then the continuation unlevered price-earnings ratio of Ideko in 2015 is closest to:

Accepted Answer

A)  17.6 
B)  16.4 
C)  14.5 
D)  19.0 
E)  13.7

Question 13

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

Accepted Answer

A)  $21.0 million 
B)  $25.2 million 
C)  $18.0 million 
D)  $21.6 million 
E)  $19.5 million

Question 14

The market size for Loppins is 60 million units.If SPI Inc.has a market share of 20% and the average sales price is $3 per Loppin,what is the dollar amount of sales of SPI?

Accepted Answer

A)  $32 million 
B)  $36 million 
C)  $38 million 
D)  $42 million 
E)  $44 million

Question 15

Based upon the average EV/EBITDA ratio of the comparable firms,Ideko's target economic value is closest to:

Accepted Answer

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

Question 16

Kendo Corp.is projecting sales of $14 million in the coming year.If the size of the market is $120 million,and Kendo sells its products for an average sale price of $36.25,what is Kendo's projected market share?

Accepted Answer

A)  5% 
B)  2% 
C)  16% 
D)  23% 
E)  54%

Question 17

A firm plans a new expansion,which will result in free cash flows of $50,000 in year 1,$60,000 in year 2,and $70,000 in year 3.The firm's continuation value after 3 years is $540,000.The expansion requires an investment of $40,000 today,and will be financed entirely with debt,resulting in an interest expense of $8,000 in each of the 3 years.If the firm's unlevered cost of capital is 9%,and its cost of debt is 6%,what is the firm's value?

Accepted Answer

A)  $548,788 
B)  $527,404 
C)  $547,654 
D)  $664,087 
E)  $416,979

Question 18

How do we compute net new financing?

Accepted Answer

The answer of How do we compute net new financing?...

Question 19

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% 
E)  13%

Question 20

Given the following data for a given period,compute the free cash flow to the firm: Net Income = $10,000
After-tax Interest Expense = $1000
Depreciation = $1000
Increase in NWC = $1000
Capital Expenditures = $2000

Accepted Answer

A)  $9000 
B)  $9500 
C)  $9700 
D)  $9900 
E)  $10,500

Exam 18: Financial Modelling and Pro Forma Analysis