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Financial Modeling Exam Wall Street Prep
Questions and Answers
Which are the two points that identify the break even unit sales?
Ans: 1. Where the Sales revenue line crosses the Total costs line
2. Where accounting profit hits zero and changes from negative to
positive
What is the formula for accounting profit?
Ans: Revenue - Total Costs, because
Describe and Explain the relationship between NPV and Year 1
Unit Sales
Ans: They have a direct relationship because PV of Net cash flows rises
as year 1 unit sales rises
Is NPV more sensitive to Year 1 Unit sales or year 2 sales growth
rate?
Ans: NPV is more sensitive to growth rate because growth rate is
compounded
List the general steps used to forecast the financial statements
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, 2 | Page
Ans: 1. Use financial statements to find which income statement items
and balance sheet items are close to being a constant percentage of sales
and which aren't
2 Forecast sales
3. Apply average historic percentage of sales to generate most of the
income statement and balance sheet
4. Use forecasting to generate the rest of teh statements
5. Make balance sheet balance by calculating longer term debt
6. Raise or lower the portion of equity relatiev to the portion of debt by
raising/lowering paid in capital
List 6 major individual income statement and balance sheet items
that are not constant percentages of sales
Ans: 1. Depreciation
2. Interest Expense
3. Taxes
4. Property Plant and Equipment
5. Short Term Debt
6. Long term debt
Fully describe and explain the relationship between external funds
needed and sales growth rate
Ans: External funds needed is very sensitive to sales growth rate, they
have a positive linear relationship because most items are a percentage
of sales
Fully explain why the discount rate is increasing over years
Ans: discount rate increases over the years because the inflation rate
and the real cost of capital increases each year. These two figures (real
cost of capital and inflation rate) are a part of calculating discount rate,
they have a direct relationship
© 2025 All rights reserved
Financial Modeling Exam Wall Street Prep
Questions and Answers
Which are the two points that identify the break even unit sales?
Ans: 1. Where the Sales revenue line crosses the Total costs line
2. Where accounting profit hits zero and changes from negative to
positive
What is the formula for accounting profit?
Ans: Revenue - Total Costs, because
Describe and Explain the relationship between NPV and Year 1
Unit Sales
Ans: They have a direct relationship because PV of Net cash flows rises
as year 1 unit sales rises
Is NPV more sensitive to Year 1 Unit sales or year 2 sales growth
rate?
Ans: NPV is more sensitive to growth rate because growth rate is
compounded
List the general steps used to forecast the financial statements
© 2025 All rights reserved
, 2 | Page
Ans: 1. Use financial statements to find which income statement items
and balance sheet items are close to being a constant percentage of sales
and which aren't
2 Forecast sales
3. Apply average historic percentage of sales to generate most of the
income statement and balance sheet
4. Use forecasting to generate the rest of teh statements
5. Make balance sheet balance by calculating longer term debt
6. Raise or lower the portion of equity relatiev to the portion of debt by
raising/lowering paid in capital
List 6 major individual income statement and balance sheet items
that are not constant percentages of sales
Ans: 1. Depreciation
2. Interest Expense
3. Taxes
4. Property Plant and Equipment
5. Short Term Debt
6. Long term debt
Fully describe and explain the relationship between external funds
needed and sales growth rate
Ans: External funds needed is very sensitive to sales growth rate, they
have a positive linear relationship because most items are a percentage
of sales
Fully explain why the discount rate is increasing over years
Ans: discount rate increases over the years because the inflation rate
and the real cost of capital increases each year. These two figures (real
cost of capital and inflation rate) are a part of calculating discount rate,
they have a direct relationship
© 2025 All rights reserved
