FNCE 4050 Practice Exam 1:
1The attached financial information on VanLeer reflects which of the following values? A) Intrinsic Value B) Market Value C) Cash D) Book Value E) BothC&D
2Which of the following is NOT a component in determining Van Leer's Actual Free Cash
Flows for 2003?A) Income from Operations for 2003B) Short term investments for 2003C) The company's 2O03 corporate tax rateD) Fixed assets from 2002E) Depreciation for 2003
3. Which of the following is NOT accurate regarding the use of VanLeer's Free Cash
Flows? A) There was an interest outflow based on the 9% rate on the short-term and long-term debt B) Van Leer paid stockholders a smaller percentage of earnings from the actual 2003 to forecasted 2004 C) VanLeer decreased net outlays for net long-term assets from actual to projectedD) VanLeer planned a redemption of non-current borrowings
4. Which of the following best describes Van Leer's FCF situation to bondholders and stockholders in 2003? A) $4 million more was paid out than what was generated in FCF B) Projected increases in retained earnings will make up 2003's difference in FCFs vs. what was paid in interest and debt C) Van Leer projects to increase borrowing by $24.8 to make up the shortage and fund other long-term projects D) On an 'after-tax basis, the income payouts to investors approximates the FCF's for 2003
5. Given the information, which of the following is absent and is needed to determine
VanLeer's value of the operations?A) Its operating cash flows each periodB) Its cost of equity as used in waccC) The yield to maturity on similar company's bonds of similar risk and maturityD) The value of its financial assets
6. If Van Leer's projected growth in sales holds true to form and will be used for theconstant growth rate "g", what is the company's value of the operations for 2003?Actual 2003 values are your base, and investors require a 17% return on their money.
A) -$ 165 B) $ 407 C) -$140 D) $ 432 E) None of the above
7. When a company's weighted average cost of capital exceeds its return on invested capital, value is being destroyed. Its economic value added would be negative. Given that investors in VanLeer have the same 17% required rate of return as in problem (#6), what is VanLeer's economic profit/loss for 2003?
A) -$ 5.796 B) -$ 8.3214 C) -$ 9.108 D) -$14.308 E) -$20.5422
8. VanLeer expects an increase in sales and production from the current year. What is the
forecasted change in its needed day-to-day capital requirements? A) -$ 1.2 B) $ 14.8 C) $ 76.2 D) $ 107 E) $41.4
9. Which of the following is the least likely use of the corporate valuation model? A) As a means of identifying firms whose worth is undervalued from its current market price B) As part ofa tax audit by the Internal Revenue Service C) As a decision-making tool in value-based management D) As a method to evaluate a takeover target
10. Similar firms in the same industry and of the same size of VanLeer have the following Price/Sales multiples: 2.6x, 3.15x, 3.45x, and 4.0x. What is VanLeer's market price per share projected for 2004, if it has 100 shares of common stock outstanding?
A) $28.86B) $34.965C) $36.63D) $38.295E) $44.40
11. VanLeer's product costs as a function of sales fell from actual 2002 to actual 2003. Which of the following is NOT likely to be a reason for it? Assume the same number of units produced and sold in all four of the options below.
A) VanLeer was able to reign in costs without passing a price increase along to thecustomerB) VanLeer's rising product costs were compensated with a bigger increase in unit salesprice to the consumer C) VanLeer raised the selling price of its goods while maintaining cost stability D) VanLeer maintained a constant input cost structure while cutting the price passed to the
end-user
12. When projecting the financial statements, which of the following is NOT a consideration
with the depreciation expense forecast? A) The depreciation schedule used B) The purchase of any long-term asset during the forecast period C) A change in the asset mix during the period being projected D) The relationship between net property, plant, and equipment and depreciation expense E) The direct relationship between sales growth and the growth in operating expenses like depreciation
- When forecasting free cash flows, which of the following projections is not needed? A) The forecasted operating capital for the upcoming year B) The projected current assets that are non-interest bearing C) The projected tax rate for the forecasted income level D) The interest expense for the upcoming year E) The operating capital from previous year
14. Using VanLeer's 3-year average cost of debt, and assuming no further borrowing, what
would be the projected 2005 interest costs in dollars for the company? A) $ 6.64 B) $11.62 C) $11.6864 D) $11.952 E) $21.878
- After forecasting the income statement, statement of retained earnings, and balance sheet for the upcoming year, a company reflects total assets of$120 million, with liabilities and equities of$100 million. Which of the following is NOT a likely response to the projected funding differential?
A) Tap into retained earnings to make up the difference. B) Liquidate short-term investments C) Defer planned asset expansion D) Borrow short-term E) Invest in marketable securities