FIN 340 FINAL EXAM FULLY COMPLETE
QUESTIONS AND ANSWERS
The four basic financial statements contained in the annual report - ANSWER
balance sheet, income statement , stockholders equity , statement of cash flows
3 aspects of cash flows that affect investment value - ANSWER Financial asset
derived from the amount of cash flows (bigger is better)
Timing of cash flows stream (sooner better)
Investors are risk adverse ( pay more for less risk)
Net cash flow differs from accounting profit because - ANSWER some of the
revenues and expenses shown in accounting profit is not yet received or paid
out
Net cash flow is - ANSWER net income + depreciation
Operating current assets does NOT include - ANSWER short term investments
Operating current assets does include - ANSWER cash, inventory and
receivables
Operating current liabilities - ANSWER accounts payable and accruals
WACC - ANSWER average rate of return required by all company investors
WACC - ANSWER Affected by capital structure
Interest rates
Risk of the firm
Investors attitude toward risk
Net operating working capital - ANSWER difference from operating current
assets and liabilities
, Operating long term assets - ANSWER support operations such as net plant
and equipment
Total net operating capital - ANSWER total amount of capital needed to run
the business
NOPAT - ANSWER after tax profit a company would have if it had no debt
and no investments on non operating assets, better measure of performance than
net income
Return on Invested capital - ANSWER It measures the rate of return that the
operations are generating . best measure of operating performance
Free Cash flow - ANSWER amount of cash flow available for distribution to
investors , NOPAT minus total net operating capital
5 uses of fcf - ANSWER Pay interest to debt holders, repay debt holders, pay
dividends, repurchase stock, buy short term investments
MVA - ANSWER represents the difference between the total market value of a
firm and the total amount of investor supplied capital, if market value of debt
and preferred stock equa l values reported in financial statements then MVA is
the difference between the market value of a forms stock and the amount of
equity its shareholders have
EVA - ANSWER is the difference between after tax operating profit and the
total dollar cost of capital including cost of equity capital , estimate of value
created by management
MVA/EVA observations - ANSWER If has negative EVA , MVA negative ; if
have positive EVa , MVA positive
MVA more dependent on future is had previous negative EVA could still have
positive MVA
Operating profit - ANSWER operating profitability is the amount if operating
profit generated by a dollar of sales
QUESTIONS AND ANSWERS
The four basic financial statements contained in the annual report - ANSWER
balance sheet, income statement , stockholders equity , statement of cash flows
3 aspects of cash flows that affect investment value - ANSWER Financial asset
derived from the amount of cash flows (bigger is better)
Timing of cash flows stream (sooner better)
Investors are risk adverse ( pay more for less risk)
Net cash flow differs from accounting profit because - ANSWER some of the
revenues and expenses shown in accounting profit is not yet received or paid
out
Net cash flow is - ANSWER net income + depreciation
Operating current assets does NOT include - ANSWER short term investments
Operating current assets does include - ANSWER cash, inventory and
receivables
Operating current liabilities - ANSWER accounts payable and accruals
WACC - ANSWER average rate of return required by all company investors
WACC - ANSWER Affected by capital structure
Interest rates
Risk of the firm
Investors attitude toward risk
Net operating working capital - ANSWER difference from operating current
assets and liabilities
, Operating long term assets - ANSWER support operations such as net plant
and equipment
Total net operating capital - ANSWER total amount of capital needed to run
the business
NOPAT - ANSWER after tax profit a company would have if it had no debt
and no investments on non operating assets, better measure of performance than
net income
Return on Invested capital - ANSWER It measures the rate of return that the
operations are generating . best measure of operating performance
Free Cash flow - ANSWER amount of cash flow available for distribution to
investors , NOPAT minus total net operating capital
5 uses of fcf - ANSWER Pay interest to debt holders, repay debt holders, pay
dividends, repurchase stock, buy short term investments
MVA - ANSWER represents the difference between the total market value of a
firm and the total amount of investor supplied capital, if market value of debt
and preferred stock equa l values reported in financial statements then MVA is
the difference between the market value of a forms stock and the amount of
equity its shareholders have
EVA - ANSWER is the difference between after tax operating profit and the
total dollar cost of capital including cost of equity capital , estimate of value
created by management
MVA/EVA observations - ANSWER If has negative EVA , MVA negative ; if
have positive EVa , MVA positive
MVA more dependent on future is had previous negative EVA could still have
positive MVA
Operating profit - ANSWER operating profitability is the amount if operating
profit generated by a dollar of sales
