Question 1

Stanley Corp.has current sales of $50 million,cost of sales of $40 million and forecasts that next year's sales will grow to $60 million.Using the percent of sales method,compute the forecast for next year's cost of sales.

Accepted Answer

A)  $48 million
B)  $40 million
C)  $50 million
D)  $60 million
E)  $44 million A

Question 2

Use the tables for the question(s)below.
Estimated 2010 Income Statement and Balance Sheet Data for Ideko Corporation
  The following are financial ratios for three comparable companies:
 
-Based upon the average price-earnings ratio of the comparable firms,Ideko's target market value of equity is closest to:

Accepted Answer

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

Question 3

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
E)  percent of earnings C

Question 4

What is common starting point for forecasting?

Accepted Answer

The answer of What is common starting point for forecasting?...

Question 5

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 6

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 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 7

XYZ has excess cash of $600,000 and earns 3% on excess cash.The firm plans to pay back $500,000 of debt this year,after paying the full annual interest on its debt.If XYZ has a corporate tax rate of 40%,what is the free cash flow to the firm?

Accepted Answer

A)  $550,000
B)  $1.55 million
C)  $1 million
D)  $1.1 million
E)  $1.05 million

Question 8

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 and no change in interest expense,estimate Billy's Burgers' pretax income for 2016.

Accepted Answer

A)  $23.28 million
B)  $35.76 million
C)  $24.84 million
D)  $38.16 million
E)  $32.35 million

Question 9

Compute the after-tax interest expense for a firm with Interest on Excess Cash = $2000,Interest on Debt = $7000,and a tax rate of 30%.

Accepted Answer

A)  $2500
B)  $2800
C)  $3100
D)  $3500
E)  $3900

Question 10

If XYZ has no excess cash and has a corporate tax rate of 25%,what is the free cash flow to the firm?

Accepted Answer

A)  $1.09 million
B)  $1 million
C)  $1.59 million
D)  $1.11 million
E)  $1.21 million

Question 11

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

Accepted Answer

The answer of What are a firm's options when it...

Question 12

Use the table for the question(s)below. 
-The amount of net working capital for Ideko in 2017 is closest to:

Accepted Answer

A)  $35,195
B)  $26,420
C)  $22,170
D)  $30,510
E)  $21,260

Question 13

Granger Inc.has done a long-term forecast of its balance sheet.Total assets are projected to be $800,000 and other long-term liabilities are $300,000.If the firm expects to need $150,000 in net new financing,what are the projected current liabilities?

Accepted Answer

A)  $650,000
B)  $150,000
C)  $350,000
D)  $450,000
E)  $250,000

Question 14

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
B)  identifying linkages
C)  decreasing the spread
D)  identifying wastage
E)  identifying differences

Question 15

Calgary Doughnuts had sales of $300 million in 2015.Its cost of sales were $200 million.If sales are expected to grow at 15% in 2016,compute the forecasted costs using the percent of sales method.

Accepted Answer

A)  $210 million
B)  $215 million
C)  $225 million
D)  $230 million
E)  $245 million

Question 16

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 2016.

Accepted Answer

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

Question 17

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 18

The percent of sales method relies on the fact 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
E)  incremental,smooth

Question 19

________ 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
E)  Net debt

Question 20

A firm has ROA of 30%,ROE of 40%,and a payout ratio of 10%.What is the firm's sustainable growth rate?

Accepted Answer

A)  12%
B)  3%
C)  4%
D)  27%
E)  36%

Exam 18: Financial Modelling and Pro Forma Analysis