1
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Financial Modeling Exam Wall Street Prep
Questions and Answers (100% Correct
Answers) Already Graded A+
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
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What is the formula for accounting profit?—Ans: Revenue - Total
Costs, because
Describe and Explain the relationship between NPV and Year 1
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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—
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
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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:
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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
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What is the main advantage of forecasting the inflation rate
separately for calculating NPV?—Ans: It assures that we are
consistent in how we treat inflation when we apply it to NPV
calculations, and include it as a component in the discount rate
State all the steps for calculating the Operating Cash Flows—Ans:
1. Start with Sales and subtract VC to get gross margin
2. Subtract TFC (depreciation plus cash fC) to get operating profit
3. Subtract taxes to get net profit
4. Add back depreciation and you get operating cash flows
Fully explain why NPV falls from a higher number to a lower
number even though the investment in working capital in years 1-4
is fully recovered in years 5-7—Ans: PV of earlier cash outflows was
greater than PV of later cash inflows
If the Unit Sales Scale Factor is 90% what is the maximum date 1
real cost of capital at which the project will be acceptable?
Why?—Ans: The Unit Sales scale factor is $652 at 11% because
any higher percentage the NPV would be negative and the
project would have to be rejected
For Expert help and assignment solutions, +254707240657
Financial Modeling Exam Wall Street Prep
Questions and Answers (100% Correct
Answers) Already Graded A+
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
© 2025 Assignment Expert
What is the formula for accounting profit?—Ans: Revenue - Total
Costs, because
Describe and Explain the relationship between NPV and Year 1
Guru01 - Stuvia
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—
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
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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:
© 2025 Assignment Expert
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
Guru01 - Stuvia
What is the main advantage of forecasting the inflation rate
separately for calculating NPV?—Ans: It assures that we are
consistent in how we treat inflation when we apply it to NPV
calculations, and include it as a component in the discount rate
State all the steps for calculating the Operating Cash Flows—Ans:
1. Start with Sales and subtract VC to get gross margin
2. Subtract TFC (depreciation plus cash fC) to get operating profit
3. Subtract taxes to get net profit
4. Add back depreciation and you get operating cash flows
Fully explain why NPV falls from a higher number to a lower
number even though the investment in working capital in years 1-4
is fully recovered in years 5-7—Ans: PV of earlier cash outflows was
greater than PV of later cash inflows
If the Unit Sales Scale Factor is 90% what is the maximum date 1
real cost of capital at which the project will be acceptable?
Why?—Ans: The Unit Sales scale factor is $652 at 11% because
any higher percentage the NPV would be negative and the
project would have to be rejected
