# Fi515 Final Exam

Topics: Stock, Balance sheet, Free cash flow Pages: 8 (1601 words) Published: September 29, 2012
Final Exam Page 1

1. (TCO A) Which of the following statements is NOT correct? (Points : 5) |        The corporate valuation model can be used both for companies that pay dividends and those that do not pay dividends.        The corporate valuation model discounts free cash flows by the required return on equity.        The corporate valuation model can be used to find the value of a division.        An important step in applying the corporate valuation model is forecasting the firm's pro forma financial statements.        Free cash flows are assumed to grow at a constant rate beyond a specified date in order to find the horizon, or terminal, value.

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2. (TCO F) Which of the following statements is correct? (Points : 5) |        The MIRR and NPV decision criteria can never conflict.        The IRR method can never be subject to the multiple IRR problem, while the MIRR method can be.        One reason some people prefer the MIRR to the regular IRR is that the MIRR is based on a generally more reasonable reinvestment rate assumption.        The higher the WACC, the shorter the discounted payback period.        The MIRR method assumes that cash flows are reinvested at the crossover rate.

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3. (TCO D) The Ackert Company's last dividend was \$1.55. The dividend growth rate is expected to be constant at 1.5% for 2 years, after which dividends are expected to grow at a rate of 8.0% forever. The firm's required return (rs) is 12.0%. What is the best estimate of the current stock price? a. \$37.05 b. \$38.16

c. \$39.30
d. \$40.48
e. \$41.70(Points : 20) |
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Reference Chapter 7 Toolkit Section 7.8
D0\$1.55
g0 to 11.5%
g1 to 21.5%
gn8%
rs12%

Year
t=1t=2
D1D2
Expected Dividends 1.571.60

Expected P243.11

PV of Expected Dividends\$2.68
PV of Expected P2
34.37

Expected P0\$37.05

4. (TCO G) The ABC Corporation's budgeted monthly sales are \$4,000. In the first month, 40% of its customers pay and take the 3% discount. The remaining 60% pay in the month following the sale and don't receive a discount. ABC's bad debts are very small and are excluded from this analysis.                        Purchases for next month's sales are constant each month at \$2,000. Other payments for wages, rent, and taxes are constant at \$500 per month. Construct a single month's cash budget with the information given. What is the average cash gain or (loss) during a typical month for the ABC Corporation? (Points : 20)

From figure 16-6 pg 654
Sales 4,000
First Month 40% pay and take discount 3%
Discount =1-.03= 97% if paid within time limit
Collection month sales =4,000 x .97 x .40=1,552
Last months Collections= (1.00 x .60 x 4,000)=2,400

Simplified Cash Budget:

Sales \$4,000 Calculations Collections (From months sales) 1,552
Collection (From last months sales) 2,400
Total Collections= 3,952------------------------- not including sales we add (1,552+2,400) Purchases Payments 2,000
Other Payments 500 Total Payments= 2,500----------------------- (2,000+500=2,500) Net Cash Gain Loss= \$1,452------------------- (3,952-2,500) 5. (TCO G) Clayton Industries is planning its operations for next year, and Ronnie Clayton, the CEO, wants you to forecast the firm's additional funds needed (AFN). The firm is operating at full capacity. Data for use in your forecast are shown below. Based on the AFN equation, what is the AFN for the coming year? Dollars are in millions. Last year's sales = S0| \$350|     | Last year's accounts payable| \$40| Sales growth rate = g| 30%|  | Last year's notes payable| \$50| Last...