Supervisory Analyst Series 16 Part II Exam Questions and Answers
Question 1. A company has an equity value of $2100 million, total debt of $100 million, and cash of $100 million. Ignoring other
adjustments, what is enterprise value?
A. $2,300 million
B. $1,900 million
C. $2,200 million
D. $2,100 million
Correct Answer: D. $2,100 million
Explanation: A simplified enterprise-value bridge adds debt to equity value and subtracts cash. Using the stated figures, $2100 million plus $100
million minus $100 million equals $2,100 million. Cash is subtracted because enterprise value is intended to reflect the value attributable to
operating assets before capital-structure claims. A full transaction analysis may require additional adjustments for items such as preferred stock,
noncontrolling interests, leases, or nonoperating assets.
Question 2. A company has revenue of $500 million and cost of goods sold of $250 million. What is its gross margin?
A. 100.0%
B. 50.0%
C. 55.0%
D. 45.0%
Correct Answer: B. 50.0%
Explanation: Gross margin equals gross profit divided by revenue. Gross profit is $250 million, and dividing that amount by $500 million
produces 50.0%. Using cost of goods sold as the denominator would calculate a different relationship and would not be gross margin. Analysts
often compare gross margin across periods and peers to assess pricing, mix, and production-cost trends.
Question 3. Which term best matches the following description: an estimate of long-run growth supportable by retained earnings and
return on equity under simplifying assumptions?
A. Sustainable growth rate
B. Cost of debt
C. 8-K
D. Book value
Correct Answer: A. Sustainable growth rate
Explanation: Sustainable growth rate is the correct concept because it is an estimate of long-run growth supportable by retained earnings and
return on equity under simplifying assumptions. The wording in the question points to the defining feature rather than to a merely associated idea.
The other choices are legitimate exam concepts, but their definitions do not match the facts stated here. Recognizing that defining feature is the
most reliable way to identify Sustainable growth rate.
Question 4. A company has an equity value of $3300 million, total debt of $1200 million, and cash of $150 million. Ignoring other
adjustments, what is enterprise value?
A. $4,650 million
B. $2,250 million
C. $4,350 million
D. $1,950 million
Correct Answer: C. $4,350 million
Explanation: A simplified enterprise-value bridge adds debt to equity value and subtracts cash. Using the stated figures, $3300 million plus
$1200 million minus $150 million equals $4,350 million. Cash is subtracted because enterprise value is intended to reflect the value attributable
to operating assets before capital-structure claims. A full transaction analysis may require additional adjustments for items such as preferred
stock, noncontrolling interests, leases, or nonoperating assets.
Question 5. Which statement about EBITDA is most accurate?
A. An estimate of the average number of days needed to collect accounts receivable
B. Enterprise value divided by EBITDA, a valuation multiple that compares total firm value with pre-interest operating earnings
C. An accounting asset representing potential future tax benefits from deductible temporary differences or carryforwards, subject to realization
D. Earnings before interest, taxes, depreciation, and amortization
Correct Answer: D. Earnings before interest, taxes, depreciation, and amortization
Explanation: EBITDA is correctly described as earnings before interest, taxes, depreciation, and amortization. That description captures the
core characteristic tested by this item. The remaining descriptions belong to different concepts and would lead to a different regulatory, product,
accounting, or operational analysis. On exam questions, match the term to its defining feature before considering secondary details.
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,Question 6. A company has an equity value of $2000 million, total debt of $250 million, and cash of $250 million. Ignoring other
adjustments, what is enterprise value?
A. $2,500 million
B. $2,000 million
C. $1,500 million
D. $2,250 million
Correct Answer: B. $2,000 million
Explanation: A simplified enterprise-value bridge adds debt to equity value and subtracts cash. Using the stated figures, $2000 million plus $250
million minus $250 million equals $2,000 million. Cash is subtracted because enterprise value is intended to reflect the value attributable to
operating assets before capital-structure claims. A full transaction analysis may require additional adjustments for items such as preferred stock,
noncontrolling interests, leases, or nonoperating assets.
Question 7. A company earns $80 million of net income. Beginning common equity was $1100 million and ending common equity was
$1100 million. Using average equity, what is ROE?
A. 7.3%
B. 5.5%
C. 6.2%
D. 8.4%
Correct Answer: A. 7.3%
Explanation: Return on equity is net income divided by average common shareholders' equity for this question. Average equity is $1100 million,
so $80 million divided by that amount equals 7.3%. Using only beginning or ending equity can distort the period comparison when equity changes
materially. ROE is an equity-return measure and should not be confused with return on assets or operating margin.
Question 8. Which choice correctly distinguishes Current ratio from 8-K?
A. Current ratio: a current SEC report used by public companies to disclose specified material events; 8-K: current assets divided by current
liabilities
B. Current ratio: analysis of a specific issuer's strategy, management, financial statements, competitive position, risks, and valuation; 8-K: a
current SEC report used by public companies to disclose specified material events
C. Current ratio: current assets divided by current liabilities; 8-K: a current SEC report used by public companies to disclose specified material
events
D. Current ratio: current assets divided by current liabilities; 8-K: an estimate of future profitability based on expected pricing, costs, operating
leverage, and business mix
Correct Answer: C. Current ratio: current assets divided by current liabilities; 8-K: a current SEC report used by public companies to disclose
specified material events
Explanation: Current ratio means current assets divided by current liabilities, whereas 8-K means a current SEC report used by public
companies to disclose specified material events. The correct choice keeps the two concepts separate and assigns each description to the proper
term. The distractors either reverse the concepts or substitute a feature belonging to another topic. That distinction matters because the two
terms can lead to different regulatory, economic, or operational consequences.
Question 9. A company reports net income of $680,000,000, preferred dividends of $20,000,000, and 70 million weighted-average
common shares outstanding. What is basic EPS?
A. $9.43
B. $7.07
C. $8.01
D. $10.84
Correct Answer: A. $9.43
Explanation: Basic EPS equals income available to common shareholders divided by weighted-average common shares outstanding. Income
available to common is $660,000,000, so dividing by 70 million shares produces $9.43 per share. Preferred dividends are subtracted because
they are not available to common shareholders. A diluted EPS calculation could differ if the company had potentially dilutive securities, but those
are not part of the facts given.
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,Question 10. A supervisory analyst is reviewing a situation described as follows: a dividend valuation model equal to next-period
dividend divided by required return minus constant growth rate. Which concept is most directly involved?
A. Margin forecast
B. Gross margin
C. Gordon growth model
D. Operating margin
Correct Answer: C. Gordon growth model
Explanation: Gordon growth model is the best answer because it is a dividend valuation model equal to next-period dividend divided by required
return minus constant growth rate. The scenario gives the supervisory analyst facts that point directly to that concept. The other choices can
arise in related securities situations but do not fit the specific description provided. Applying the precise definition to the facts is the best way to
resolve this type of scenario.
Question 11. Which term best matches the following description: a Securities Act defense potentially available to specified defendants
who conducted a reasonable investigation and had reasonable grounds to believe required disclosures were accurate?
A. Overallotment option
B. EBITDA
C. FINRA corporate financing rule
D. Due diligence defense
Correct Answer: D. Due diligence defense
Explanation: Due diligence defense is the correct concept because it is a Securities Act defense potentially available to specified defendants
who conducted a reasonable investigation and had reasonable grounds to believe required disclosures were accurate. The wording in the
question points to the defining feature rather than to a merely associated idea. The other choices are legitimate exam concepts, but their
definitions do not match the facts stated here. Recognizing that defining feature is the most reliable way to identify Due diligence defense.
Question 12. A company reports net income of $440,000,000, preferred dividends of $0.00, and 100 million weighted-average common
shares outstanding. What is basic EPS?
A. $3.30
B. $4.40
C. $3.74
D. $5.06
Correct Answer: B. $4.40
Explanation: Basic EPS equals income available to common shareholders divided by weighted-average common shares outstanding. Income
available to common is $440,000,000, so dividing by 100 million shares produces $4.40 per share. Preferred dividends are subtracted because
they are not available to common shareholders. A diluted EPS calculation could differ if the company had potentially dilutive securities, but those
are not part of the facts given.
Question 13. A DCF uses a final-year free cash flow of $170 million, a perpetual growth rate of 3.0%, and a discount rate of 8.0%. Using
the Gordon growth method, what is the terminal value at the end of the final forecast year?
A. $3,502.0 million
B. $3,400.0 million
C. $3,672.0 million
D. $2,188.8 million
Correct Answer: A. $3,502.0 million
Explanation: Under the Gordon growth method, terminal value equals next-period free cash flow divided by the discount rate minus the
perpetual growth rate. Next-period free cash flow is $175.1 million, which divided by 5.0% gives about $3,502.0 million. The formula assumes the
business grows at the stated constant rate beyond the explicit forecast period. The terminal value is measured at the end of the final forecast
year and must still be discounted to present value for a full DCF valuation.
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, Question 14. A company has an equity value of $1000 million, total debt of $1600 million, and cash of $50 million. Ignoring other
adjustments, what is enterprise value?
A. $2,650 million
B. $2,550 million
C. $-550 million
D. $-650 million
Correct Answer: B. $2,550 million
Explanation: A simplified enterprise-value bridge adds debt to equity value and subtracts cash. Using the stated figures, $1000 million plus
$1600 million minus $50 million equals $2,550 million. Cash is subtracted because enterprise value is intended to reflect the value attributable to
operating assets before capital-structure claims. A full transaction analysis may require additional adjustments for items such as preferred stock,
noncontrolling interests, leases, or nonoperating assets.
Question 15. A comparable company has enterprise value of $1250 million and EBITDA of $475 million. What is its EV/EBITDA
multiple?
A. 2.0x
B. 2.2x
C. 3.0x
D. 2.6x
Correct Answer: D. 2.6x
Explanation: EV/EBITDA equals enterprise value divided by EBITDA. Dividing $1250 million by $475 million gives 2.6x. Because enterprise
value reflects both debt and equity capital, EBITDA is a commonly paired pre-interest operating metric. A price/earnings multiple instead uses
equity value or share price and an earnings measure available to common shareholders.
Question 16. Which term best matches the following description: advance compliance approval required by firm policy before specified
personal securities transactions?
A. Terminal assumption
B. Independent third-party research
C. Preclearance
D. Pitch meeting restriction
Correct Answer: C. Preclearance
Explanation: Preclearance is the correct concept because it is advance compliance approval required by firm policy before specified personal
securities transactions. The wording in the question points to the defining feature rather than to a merely associated idea. The other choices are
legitimate exam concepts, but their definitions do not match the facts stated here. Recognizing that defining feature is the most reliable way to
identify Preclearance.
Question 17. Which concept-and-description pairing is correctly matched?
A. Dividend yield - cost of goods sold divided by average inventory under a common formulation
B. Impairment - earnings before interest and taxes
C. Sensitivity analysis - evaluation of how a valuation or forecast changes when one or more key assumptions vary
D. Goodwill - an estimate of future profitability based on expected pricing, costs, operating leverage, and business mix
Correct Answer: C. Sensitivity analysis - evaluation of how a valuation or forecast changes when one or more key assumptions vary
Explanation: Only the pairing for Sensitivity analysis is accurate: it is evaluation of how a valuation or forecast changes when one or more key
assumptions vary. Each incorrect choice attaches a valid-sounding description to the wrong concept. Because the distractors are drawn from
related exam material, they can appear plausible unless both parts of the pairing are checked. Verify the term and its defining feature together
before selecting a matched pair.
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Question 1. A company has an equity value of $2100 million, total debt of $100 million, and cash of $100 million. Ignoring other
adjustments, what is enterprise value?
A. $2,300 million
B. $1,900 million
C. $2,200 million
D. $2,100 million
Correct Answer: D. $2,100 million
Explanation: A simplified enterprise-value bridge adds debt to equity value and subtracts cash. Using the stated figures, $2100 million plus $100
million minus $100 million equals $2,100 million. Cash is subtracted because enterprise value is intended to reflect the value attributable to
operating assets before capital-structure claims. A full transaction analysis may require additional adjustments for items such as preferred stock,
noncontrolling interests, leases, or nonoperating assets.
Question 2. A company has revenue of $500 million and cost of goods sold of $250 million. What is its gross margin?
A. 100.0%
B. 50.0%
C. 55.0%
D. 45.0%
Correct Answer: B. 50.0%
Explanation: Gross margin equals gross profit divided by revenue. Gross profit is $250 million, and dividing that amount by $500 million
produces 50.0%. Using cost of goods sold as the denominator would calculate a different relationship and would not be gross margin. Analysts
often compare gross margin across periods and peers to assess pricing, mix, and production-cost trends.
Question 3. Which term best matches the following description: an estimate of long-run growth supportable by retained earnings and
return on equity under simplifying assumptions?
A. Sustainable growth rate
B. Cost of debt
C. 8-K
D. Book value
Correct Answer: A. Sustainable growth rate
Explanation: Sustainable growth rate is the correct concept because it is an estimate of long-run growth supportable by retained earnings and
return on equity under simplifying assumptions. The wording in the question points to the defining feature rather than to a merely associated idea.
The other choices are legitimate exam concepts, but their definitions do not match the facts stated here. Recognizing that defining feature is the
most reliable way to identify Sustainable growth rate.
Question 4. A company has an equity value of $3300 million, total debt of $1200 million, and cash of $150 million. Ignoring other
adjustments, what is enterprise value?
A. $4,650 million
B. $2,250 million
C. $4,350 million
D. $1,950 million
Correct Answer: C. $4,350 million
Explanation: A simplified enterprise-value bridge adds debt to equity value and subtracts cash. Using the stated figures, $3300 million plus
$1200 million minus $150 million equals $4,350 million. Cash is subtracted because enterprise value is intended to reflect the value attributable
to operating assets before capital-structure claims. A full transaction analysis may require additional adjustments for items such as preferred
stock, noncontrolling interests, leases, or nonoperating assets.
Question 5. Which statement about EBITDA is most accurate?
A. An estimate of the average number of days needed to collect accounts receivable
B. Enterprise value divided by EBITDA, a valuation multiple that compares total firm value with pre-interest operating earnings
C. An accounting asset representing potential future tax benefits from deductible temporary differences or carryforwards, subject to realization
D. Earnings before interest, taxes, depreciation, and amortization
Correct Answer: D. Earnings before interest, taxes, depreciation, and amortization
Explanation: EBITDA is correctly described as earnings before interest, taxes, depreciation, and amortization. That description captures the
core characteristic tested by this item. The remaining descriptions belong to different concepts and would lead to a different regulatory, product,
accounting, or operational analysis. On exam questions, match the term to its defining feature before considering secondary details.
1
,Question 6. A company has an equity value of $2000 million, total debt of $250 million, and cash of $250 million. Ignoring other
adjustments, what is enterprise value?
A. $2,500 million
B. $2,000 million
C. $1,500 million
D. $2,250 million
Correct Answer: B. $2,000 million
Explanation: A simplified enterprise-value bridge adds debt to equity value and subtracts cash. Using the stated figures, $2000 million plus $250
million minus $250 million equals $2,000 million. Cash is subtracted because enterprise value is intended to reflect the value attributable to
operating assets before capital-structure claims. A full transaction analysis may require additional adjustments for items such as preferred stock,
noncontrolling interests, leases, or nonoperating assets.
Question 7. A company earns $80 million of net income. Beginning common equity was $1100 million and ending common equity was
$1100 million. Using average equity, what is ROE?
A. 7.3%
B. 5.5%
C. 6.2%
D. 8.4%
Correct Answer: A. 7.3%
Explanation: Return on equity is net income divided by average common shareholders' equity for this question. Average equity is $1100 million,
so $80 million divided by that amount equals 7.3%. Using only beginning or ending equity can distort the period comparison when equity changes
materially. ROE is an equity-return measure and should not be confused with return on assets or operating margin.
Question 8. Which choice correctly distinguishes Current ratio from 8-K?
A. Current ratio: a current SEC report used by public companies to disclose specified material events; 8-K: current assets divided by current
liabilities
B. Current ratio: analysis of a specific issuer's strategy, management, financial statements, competitive position, risks, and valuation; 8-K: a
current SEC report used by public companies to disclose specified material events
C. Current ratio: current assets divided by current liabilities; 8-K: a current SEC report used by public companies to disclose specified material
events
D. Current ratio: current assets divided by current liabilities; 8-K: an estimate of future profitability based on expected pricing, costs, operating
leverage, and business mix
Correct Answer: C. Current ratio: current assets divided by current liabilities; 8-K: a current SEC report used by public companies to disclose
specified material events
Explanation: Current ratio means current assets divided by current liabilities, whereas 8-K means a current SEC report used by public
companies to disclose specified material events. The correct choice keeps the two concepts separate and assigns each description to the proper
term. The distractors either reverse the concepts or substitute a feature belonging to another topic. That distinction matters because the two
terms can lead to different regulatory, economic, or operational consequences.
Question 9. A company reports net income of $680,000,000, preferred dividends of $20,000,000, and 70 million weighted-average
common shares outstanding. What is basic EPS?
A. $9.43
B. $7.07
C. $8.01
D. $10.84
Correct Answer: A. $9.43
Explanation: Basic EPS equals income available to common shareholders divided by weighted-average common shares outstanding. Income
available to common is $660,000,000, so dividing by 70 million shares produces $9.43 per share. Preferred dividends are subtracted because
they are not available to common shareholders. A diluted EPS calculation could differ if the company had potentially dilutive securities, but those
are not part of the facts given.
2
,Question 10. A supervisory analyst is reviewing a situation described as follows: a dividend valuation model equal to next-period
dividend divided by required return minus constant growth rate. Which concept is most directly involved?
A. Margin forecast
B. Gross margin
C. Gordon growth model
D. Operating margin
Correct Answer: C. Gordon growth model
Explanation: Gordon growth model is the best answer because it is a dividend valuation model equal to next-period dividend divided by required
return minus constant growth rate. The scenario gives the supervisory analyst facts that point directly to that concept. The other choices can
arise in related securities situations but do not fit the specific description provided. Applying the precise definition to the facts is the best way to
resolve this type of scenario.
Question 11. Which term best matches the following description: a Securities Act defense potentially available to specified defendants
who conducted a reasonable investigation and had reasonable grounds to believe required disclosures were accurate?
A. Overallotment option
B. EBITDA
C. FINRA corporate financing rule
D. Due diligence defense
Correct Answer: D. Due diligence defense
Explanation: Due diligence defense is the correct concept because it is a Securities Act defense potentially available to specified defendants
who conducted a reasonable investigation and had reasonable grounds to believe required disclosures were accurate. The wording in the
question points to the defining feature rather than to a merely associated idea. The other choices are legitimate exam concepts, but their
definitions do not match the facts stated here. Recognizing that defining feature is the most reliable way to identify Due diligence defense.
Question 12. A company reports net income of $440,000,000, preferred dividends of $0.00, and 100 million weighted-average common
shares outstanding. What is basic EPS?
A. $3.30
B. $4.40
C. $3.74
D. $5.06
Correct Answer: B. $4.40
Explanation: Basic EPS equals income available to common shareholders divided by weighted-average common shares outstanding. Income
available to common is $440,000,000, so dividing by 100 million shares produces $4.40 per share. Preferred dividends are subtracted because
they are not available to common shareholders. A diluted EPS calculation could differ if the company had potentially dilutive securities, but those
are not part of the facts given.
Question 13. A DCF uses a final-year free cash flow of $170 million, a perpetual growth rate of 3.0%, and a discount rate of 8.0%. Using
the Gordon growth method, what is the terminal value at the end of the final forecast year?
A. $3,502.0 million
B. $3,400.0 million
C. $3,672.0 million
D. $2,188.8 million
Correct Answer: A. $3,502.0 million
Explanation: Under the Gordon growth method, terminal value equals next-period free cash flow divided by the discount rate minus the
perpetual growth rate. Next-period free cash flow is $175.1 million, which divided by 5.0% gives about $3,502.0 million. The formula assumes the
business grows at the stated constant rate beyond the explicit forecast period. The terminal value is measured at the end of the final forecast
year and must still be discounted to present value for a full DCF valuation.
3
, Question 14. A company has an equity value of $1000 million, total debt of $1600 million, and cash of $50 million. Ignoring other
adjustments, what is enterprise value?
A. $2,650 million
B. $2,550 million
C. $-550 million
D. $-650 million
Correct Answer: B. $2,550 million
Explanation: A simplified enterprise-value bridge adds debt to equity value and subtracts cash. Using the stated figures, $1000 million plus
$1600 million minus $50 million equals $2,550 million. Cash is subtracted because enterprise value is intended to reflect the value attributable to
operating assets before capital-structure claims. A full transaction analysis may require additional adjustments for items such as preferred stock,
noncontrolling interests, leases, or nonoperating assets.
Question 15. A comparable company has enterprise value of $1250 million and EBITDA of $475 million. What is its EV/EBITDA
multiple?
A. 2.0x
B. 2.2x
C. 3.0x
D. 2.6x
Correct Answer: D. 2.6x
Explanation: EV/EBITDA equals enterprise value divided by EBITDA. Dividing $1250 million by $475 million gives 2.6x. Because enterprise
value reflects both debt and equity capital, EBITDA is a commonly paired pre-interest operating metric. A price/earnings multiple instead uses
equity value or share price and an earnings measure available to common shareholders.
Question 16. Which term best matches the following description: advance compliance approval required by firm policy before specified
personal securities transactions?
A. Terminal assumption
B. Independent third-party research
C. Preclearance
D. Pitch meeting restriction
Correct Answer: C. Preclearance
Explanation: Preclearance is the correct concept because it is advance compliance approval required by firm policy before specified personal
securities transactions. The wording in the question points to the defining feature rather than to a merely associated idea. The other choices are
legitimate exam concepts, but their definitions do not match the facts stated here. Recognizing that defining feature is the most reliable way to
identify Preclearance.
Question 17. Which concept-and-description pairing is correctly matched?
A. Dividend yield - cost of goods sold divided by average inventory under a common formulation
B. Impairment - earnings before interest and taxes
C. Sensitivity analysis - evaluation of how a valuation or forecast changes when one or more key assumptions vary
D. Goodwill - an estimate of future profitability based on expected pricing, costs, operating leverage, and business mix
Correct Answer: C. Sensitivity analysis - evaluation of how a valuation or forecast changes when one or more key assumptions vary
Explanation: Only the pairing for Sensitivity analysis is accurate: it is evaluation of how a valuation or forecast changes when one or more key
assumptions vary. Each incorrect choice attaches a valid-sounding description to the wrong concept. Because the distractors are drawn from
related exam material, they can appear plausible unless both parts of the pairing are checked. Verify the term and its defining feature together
before selecting a matched pair.
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