Wall Street Prep Premium Exam With m m m m m
Questions And Answers m m m
What is generally not considered to be a pre-tax non-recurring (unusual or infrequent) item? -
m m m m m m m m m m m m m m m
correct answer- Extraordinary gains/losses
m m m m
m what is false about depreciation and amortization - correct answer- D&A may be classified
m m m m m m m mm m m m m m
m within interest expense m m
m Company X's current assets increased by $40 million from 2007-2008 while the companies
m m m m m m m m m m m m
m current liabilities increased by $25 million over the same period. the cash impact of the
m m m m m m m m m m m m m m
m change in working capital was - correct answer- a decrease of 15 million
m m m m m mm m m m m m m
m the final component of an earnings projection model is calculating interest expense. the
m m m m m m m m m m m m
m calculation may create a circular reference because - correct answer- interest expense
m m m m m m m mm m m m
m affects net income, which affects FCF, which affects the amount of debt a company pays
m m m m m m m m m m m m m m
m down, which, in turn affects the interest expense, hence the circular reference
m m m m m m m m m m m
m a 10-q financial filing has all of the following characteristics except - correct answer- issued
m m m m m m m m m m m mm m m
m four times a year. m m m
m Depreciation Expense found in the SG&A line of the income statement for a manufacturing m m m m m m m m m m m m m
m firm would most likely be attributable to which of the following - correct answer- computers
m m m m m m m m m m m mm m m
m used by the accounting department
m m m m
m If a company has projected revenues of $10 billion, a gross profit margin of 65%, and
m m m m m m m m m m m m m m m
m projected SG&A expenses of $2billion, what is the company's operating (EBIT) margin? -
m m m m m m m m m m m m m
m correct answer- 45% m m
m A company has the following information, 1. 2014 revenues of $5 billion,2013 Accounts
m m m m m m m m m m m m
m receivable of $400 million, 2014 accounts receivable of $600 million, what are the days sales
m m m m m m m m m m m m m m
m outstanding - correct answer- 36.5 m mm m m
A company has the following information:
m m m m m m
• 2014 Revenues of $8 billion
m m m m m
• 2014 COGS of $5 billion
m m m m m
• 2013 Accounts receivable of $400 million
m m m m m m
• 2014 Accounts receivable of $600 million
m m m m m m
• 2013 Inventories of $1 billion
m m m m m
• 2014 Inventories of $800 million
m m m m m
• 2013 Accounts payable of $250 million
m m m m m m
,• 2014 Accounts payable of $300 million
m m m m m m
What are the inventory days for the company? - correct answer- 65.7 days
m m m m m m m m mm m m m
m Which of the following is true - correct answer- Coca Cola's brand name is not reflected as an
m m m m m m mm m m m m m m m m m m
m intangible asset on its balance sheet m m m m m
A company has the following information:
m m m m m m
• 2014 share repurchase plan of $4 billion
m m m m m m m
• Average share price of $60 for the year 2013
m m m m m m m m m
• Expected EPS growth for 2014 of 10%
m m m m m m m
What should the number of shares repurchased by the company be in your financial model? -
m m m m m m m m m m m m m m m m
correct answer- 60.6 million
m m m m
m non-controlling interest - correct answer- is an expense on the income statement and equity o m m mm m m m m m m m m m m m
m the balance sheet m m
A company has the following information:
m m m m m m
• 2013 retained earnings balance of $12 billion
m m m m m m m
• Net income of $3.5 billion in 2014
m m m m m m m
• Capex of $200 million in 2014
m m m m m m
• Preferred dividends of $100 million in 2014
m m m m m m m
• Common dividends of $400 million in 2014
m m m m m m m
What is the retained earnings balance at the end of 2014? - correct answer- 15 billion
m m m m m m m m m m m mm m m m
m in order to find out how much cash is available to pay down short term debt, such as revolving
m m m m m m m m m m m m m m m m m m
m credit line, you must take - correct answer- beginning cash balance + pre-debt cash flows -
m m m m m mm m m m m m m m m m
m min. cash balance - required principal payments of LT and other debt
m m m m m m m m m m m
m to calculate interest expense in the future, you should do which of the following - correct
m m m m m m m m m m m m m m mm
m answer- apply a weighted average interest rate times the average debt balance over the
m m m m m m m m m m m m m
m course of the year m m m
m enterprise (transaction) value represents the: - correct answer- value of all capital invested in m m m m m mm m m m m m m m
m a business
m
A debt holder would be primarily concerned with which of the following multiples?
m m m m m m m m m m m m m
I. Enterprise (Transaction) Value / EBITDA
m m m m m
II. Price/Earnings m
III. Enterprise (Transaction) Value / Sales - correct answer- 1 and 3 only
m m m m m m mm m m m m m
m On January 1, 2014, shares of Company X trade at $6.50 per share, with 400 million shares
m m m m m m m m m m m m m m m m
m outstanding. The company has net debt of $300 million. After building an earnings model for m m m m m m m m m m m m m m
m Company X, you have projected free cash flow for each year through 2020 as follows: m m m m m m m m m m m m m m
Year 2014 2015 2016 2017 2018 2019 2020 m m m m m m m
Free Cash Flow 110 120 150 170 200 250 280
m m m m m m m m m
, You estimate that the weighted average cost of capital (WACC) for Company X is 10% and
m m m m m m m m m m m m m m m
assume that free cash flows grow in perpetuity at 3.0% annually beyond 2020, the final
m m m m m m m m m m m m m m m
projected year. Estimate the present value of the projected free cash flows through 2020,
m m m m m m m m m m m m m m
discounted at the stated WACC. Assume all cash flows are generated at the end of the year
m m m m m m m m m m m m m m m m m
(i.e., no mid-year adjustment): - correct answer- 837 million
m m m m m mm m m m
On January 1, 2014, shares of Company X trade at $6.50 per share, with 400 million shares
m m m m m m m m m m m m m m m m m
outstanding. The
m m
company has net debt of $300 million. After building an earnings model for Company X, you
m m m m m m m m m m m m m m m
have projected free
m m m
cash flow for each year through 2014 as follows:
m m m m m m m m
Year 2014 2015 2016 2017 2018 2019 2020
m m m m m m m
Free Cash Flow 110 120 150 170 200 250 280
m m m m m m m m m
You estimate that the weighted average cost of capital (WACC) for Company X is 10% and
m m m m m m m m m m m m m m m
assume that free cash
m m m m
flows grow in perpetuity at 3.0% annually beyond 2020, the final projected year.
m m m m m m m m m m m m
Calculate Company X's implied Enterprise Value by using the discounted cash flow method: -
m m m m m m m m m m m m m m
correct answer- 2951.2 million
m m m m
On January 1, 2014, shares of Company X trade at $6.50 per share, with 400 million shares
m m m m m m m m m m m m m m m m m
outstanding. The
m m
company has net debt of $300 million. After building an earnings model for Company X, you
m m m m m m m m m m m m m m m
have projected free
m m m
cash flow for each year through 2014 as follows:
m m m m m m m m
Year 2014 2015 2016 2017 2018 2019 2020
m m m m m m m
Free Cash Flow 110 120 150 170 200 250 280
m m m m m m m m m
You estimate that the weighted average cost of capital (WACC) for Company X is 10% and
m m m m m m m m m m m m m m m
assume that free cash
m m m m
flows grow in perpetuity at 3.0% annually beyond 2020, the final projected year.
m m m m m m m m m m m m
According to the discounted cash flow valuation method, Company X shares are: - correct
m m m m m m m m m m m m mm
answer- .13 per share overvalued
m m m m m
m the formula for discounting any specific period cash flow in period "t"is: - correct answer- cash
m m m m m m m m m m m m mm m m
m flow from period "t" divided by (1+discount rate raised exponentially to "t"
m m m m m m m m m m m
m the terminal value of a business that grows indefinitely is calculated as follows - correct
m m m m m m m m m m m m m mm
m answer- cash flow from period "t+1" divided by (discount rate-growth rate)
m m m m m m m m m m
m the two-stage DCF model is: - correct answer- where stage 1 is an explicit projection of free
m m m m m mm m m m m m m m m m m
m cash flows (generally for 5-10 years), and stage 2 is a lump-sum estimate of the cash flows
m m m m m m m m m m m m m m m m
m beyond the explicit forecast periodm m m m
Questions And Answers m m m
What is generally not considered to be a pre-tax non-recurring (unusual or infrequent) item? -
m m m m m m m m m m m m m m m
correct answer- Extraordinary gains/losses
m m m m
m what is false about depreciation and amortization - correct answer- D&A may be classified
m m m m m m m mm m m m m m
m within interest expense m m
m Company X's current assets increased by $40 million from 2007-2008 while the companies
m m m m m m m m m m m m
m current liabilities increased by $25 million over the same period. the cash impact of the
m m m m m m m m m m m m m m
m change in working capital was - correct answer- a decrease of 15 million
m m m m m mm m m m m m m
m the final component of an earnings projection model is calculating interest expense. the
m m m m m m m m m m m m
m calculation may create a circular reference because - correct answer- interest expense
m m m m m m m mm m m m
m affects net income, which affects FCF, which affects the amount of debt a company pays
m m m m m m m m m m m m m m
m down, which, in turn affects the interest expense, hence the circular reference
m m m m m m m m m m m
m a 10-q financial filing has all of the following characteristics except - correct answer- issued
m m m m m m m m m m m mm m m
m four times a year. m m m
m Depreciation Expense found in the SG&A line of the income statement for a manufacturing m m m m m m m m m m m m m
m firm would most likely be attributable to which of the following - correct answer- computers
m m m m m m m m m m m mm m m
m used by the accounting department
m m m m
m If a company has projected revenues of $10 billion, a gross profit margin of 65%, and
m m m m m m m m m m m m m m m
m projected SG&A expenses of $2billion, what is the company's operating (EBIT) margin? -
m m m m m m m m m m m m m
m correct answer- 45% m m
m A company has the following information, 1. 2014 revenues of $5 billion,2013 Accounts
m m m m m m m m m m m m
m receivable of $400 million, 2014 accounts receivable of $600 million, what are the days sales
m m m m m m m m m m m m m m
m outstanding - correct answer- 36.5 m mm m m
A company has the following information:
m m m m m m
• 2014 Revenues of $8 billion
m m m m m
• 2014 COGS of $5 billion
m m m m m
• 2013 Accounts receivable of $400 million
m m m m m m
• 2014 Accounts receivable of $600 million
m m m m m m
• 2013 Inventories of $1 billion
m m m m m
• 2014 Inventories of $800 million
m m m m m
• 2013 Accounts payable of $250 million
m m m m m m
,• 2014 Accounts payable of $300 million
m m m m m m
What are the inventory days for the company? - correct answer- 65.7 days
m m m m m m m m mm m m m
m Which of the following is true - correct answer- Coca Cola's brand name is not reflected as an
m m m m m m mm m m m m m m m m m m
m intangible asset on its balance sheet m m m m m
A company has the following information:
m m m m m m
• 2014 share repurchase plan of $4 billion
m m m m m m m
• Average share price of $60 for the year 2013
m m m m m m m m m
• Expected EPS growth for 2014 of 10%
m m m m m m m
What should the number of shares repurchased by the company be in your financial model? -
m m m m m m m m m m m m m m m m
correct answer- 60.6 million
m m m m
m non-controlling interest - correct answer- is an expense on the income statement and equity o m m mm m m m m m m m m m m m
m the balance sheet m m
A company has the following information:
m m m m m m
• 2013 retained earnings balance of $12 billion
m m m m m m m
• Net income of $3.5 billion in 2014
m m m m m m m
• Capex of $200 million in 2014
m m m m m m
• Preferred dividends of $100 million in 2014
m m m m m m m
• Common dividends of $400 million in 2014
m m m m m m m
What is the retained earnings balance at the end of 2014? - correct answer- 15 billion
m m m m m m m m m m m mm m m m
m in order to find out how much cash is available to pay down short term debt, such as revolving
m m m m m m m m m m m m m m m m m m
m credit line, you must take - correct answer- beginning cash balance + pre-debt cash flows -
m m m m m mm m m m m m m m m m
m min. cash balance - required principal payments of LT and other debt
m m m m m m m m m m m
m to calculate interest expense in the future, you should do which of the following - correct
m m m m m m m m m m m m m m mm
m answer- apply a weighted average interest rate times the average debt balance over the
m m m m m m m m m m m m m
m course of the year m m m
m enterprise (transaction) value represents the: - correct answer- value of all capital invested in m m m m m mm m m m m m m m
m a business
m
A debt holder would be primarily concerned with which of the following multiples?
m m m m m m m m m m m m m
I. Enterprise (Transaction) Value / EBITDA
m m m m m
II. Price/Earnings m
III. Enterprise (Transaction) Value / Sales - correct answer- 1 and 3 only
m m m m m m mm m m m m m
m On January 1, 2014, shares of Company X trade at $6.50 per share, with 400 million shares
m m m m m m m m m m m m m m m m
m outstanding. The company has net debt of $300 million. After building an earnings model for m m m m m m m m m m m m m m
m Company X, you have projected free cash flow for each year through 2020 as follows: m m m m m m m m m m m m m m
Year 2014 2015 2016 2017 2018 2019 2020 m m m m m m m
Free Cash Flow 110 120 150 170 200 250 280
m m m m m m m m m
, You estimate that the weighted average cost of capital (WACC) for Company X is 10% and
m m m m m m m m m m m m m m m
assume that free cash flows grow in perpetuity at 3.0% annually beyond 2020, the final
m m m m m m m m m m m m m m m
projected year. Estimate the present value of the projected free cash flows through 2020,
m m m m m m m m m m m m m m
discounted at the stated WACC. Assume all cash flows are generated at the end of the year
m m m m m m m m m m m m m m m m m
(i.e., no mid-year adjustment): - correct answer- 837 million
m m m m m mm m m m
On January 1, 2014, shares of Company X trade at $6.50 per share, with 400 million shares
m m m m m m m m m m m m m m m m m
outstanding. The
m m
company has net debt of $300 million. After building an earnings model for Company X, you
m m m m m m m m m m m m m m m
have projected free
m m m
cash flow for each year through 2014 as follows:
m m m m m m m m
Year 2014 2015 2016 2017 2018 2019 2020
m m m m m m m
Free Cash Flow 110 120 150 170 200 250 280
m m m m m m m m m
You estimate that the weighted average cost of capital (WACC) for Company X is 10% and
m m m m m m m m m m m m m m m
assume that free cash
m m m m
flows grow in perpetuity at 3.0% annually beyond 2020, the final projected year.
m m m m m m m m m m m m
Calculate Company X's implied Enterprise Value by using the discounted cash flow method: -
m m m m m m m m m m m m m m
correct answer- 2951.2 million
m m m m
On January 1, 2014, shares of Company X trade at $6.50 per share, with 400 million shares
m m m m m m m m m m m m m m m m m
outstanding. The
m m
company has net debt of $300 million. After building an earnings model for Company X, you
m m m m m m m m m m m m m m m
have projected free
m m m
cash flow for each year through 2014 as follows:
m m m m m m m m
Year 2014 2015 2016 2017 2018 2019 2020
m m m m m m m
Free Cash Flow 110 120 150 170 200 250 280
m m m m m m m m m
You estimate that the weighted average cost of capital (WACC) for Company X is 10% and
m m m m m m m m m m m m m m m
assume that free cash
m m m m
flows grow in perpetuity at 3.0% annually beyond 2020, the final projected year.
m m m m m m m m m m m m
According to the discounted cash flow valuation method, Company X shares are: - correct
m m m m m m m m m m m m mm
answer- .13 per share overvalued
m m m m m
m the formula for discounting any specific period cash flow in period "t"is: - correct answer- cash
m m m m m m m m m m m m mm m m
m flow from period "t" divided by (1+discount rate raised exponentially to "t"
m m m m m m m m m m m
m the terminal value of a business that grows indefinitely is calculated as follows - correct
m m m m m m m m m m m m m mm
m answer- cash flow from period "t+1" divided by (discount rate-growth rate)
m m m m m m m m m m
m the two-stage DCF model is: - correct answer- where stage 1 is an explicit projection of free
m m m m m mm m m m m m m m m m m
m cash flows (generally for 5-10 years), and stage 2 is a lump-sum estimate of the cash flows
m m m m m m m m m m m m m m m m
m beyond the explicit forecast periodm m m m
