Financial Modeling Exam 2
List the five equal techniques for company and mission valuation. - ANSEquivalent Methods:
Adjusted Present Value, Free Cash Flow to Equity, Free Cash Flow to the Firm, Dividend
Discount Model, Residual Income.
Valuation Methods: Free Cash Flow to Equity, Dividends, Tax Shield Benefit, Free Cash Flow
to the Firm, Economic Profit.
Fully listing all the vast steps for calculating the Value Added by way of the Firm with the
Adjusted Present Value technique in Figure 10.2. - ANSa) Take the Free Cash Flow to the
Firm and cut price at he Unlevered Cost of Equity Capital to get the Value of the Unlevered
Firm.
B) Take the Tax Shield Benefit and discount on the Cost of Risk-unfastened Debt to get the
Value of the Tax Shield.
C) Sum the Value of the Unlevered Firm and the Value if the Tax Shield to get the Value of
the Firm.
D) Subtract Date 0 Capital to get the Value Added with the aid of the Firm.
Fully list all of the vast steps for calculating the Value Added through the Firm with the Free
Cash Flow to Equity approach in Figure 10.3. - ANSa) Take the Free Cash Flow to Equity
and the cut price on the Levered Cost of Equity Capital to reap the Value of Equity.
B) Take the Cash Flow to Debtholders and cut price on the Cost of Risk-unfastened Debt to
acquire the Value of Debt.
C) Sum the Value of the Equity and the Value of Debt to get the Value of the Firm.
D) Subtract Date 0 Capital to get the Value Added by the Firm
Fully listing all of the broad steps for calculating the Value Added through the Firm with the
Free Cash Flow to Firm approach in Figure 10.4. - ANSa) Take the Free Cash Flow to the
Firm and bargain at the Cost of Firm Capital (WACC) to acquire the Value of the Firm.
B) Subtract Date 0 Capital to get the Value Added with the aid of the Firm.
Fully listing all of the vast steps for calculating the Value Added by using the Firm with the
Dividend Discount Model approach in Figure 10.5. - ANSa) Take the Dividends and cut price
on the Levered Cost of Equity Capital to reap the Value of the Equity.
B) Take the Cash Flow to Debtholders and bargain at the Cost of Risk-loose Debt to obtain
the Value of Debt.
C) Sum the Value of the Equity and the Value of Debt to get the Value of the Firm.
D) Subtract Date 0 Capital to get he Value Added via the Firm.
Fully list all the large steps for calculating the Value Added with the aid of Firm with the
Residual Income technique in Figure 10.6. - ANSa) Take the Economic Profit and cut price
on the Cost of the Firm Capital (WACC) to gain the Value of Economic Profit.
B) Add the Date zero Book Value of the Firm to get the Value of the Firm.
C) Subtract Date zero Capital to get the Value Added through the Firm.
, Fully provide an explanation for why the Discount Rate is growing over the years in Figure
14.1. - ANSBecause the marginally growing Real Cost of Capital is being compounded
through the increasing Inflation Rate; This consequences in an increasing Discount Rate.
What is the primary gain of forecasting the inflation rate separately for calculating Net
Present Value in Figure 14.1-14.2? - ANSThis ensures that we are constant within the way
that we're treating the inflation component of cash flows within the numerator of the NPV
calculation and the inflation factor of the cut price price within the denominatior of the NPV
calculation.
State all of the steps for calculating the Operating Cash Flows in Figure 14.2, beginning with
Sales. - ANSa. Compute Sales Revenue by using multiplying Unit Sales and Sales
Revenue/Unit
b. Compute Variable Costs by using multiplying Unit Sales and Variable Costs/Unit and
subtract from Sales Revenue to get the Gross Margin
c. Add Cash constant prices and Depreciation to get Total Fixed Costs
d. Subtract Total Fixed Costs from Gross Margin to get Operating Profit
e. Subtract Taxes to get Net Profit
f. Add Depreciation again in
g. You now have Operating Cash Flow
Fully provide an explanation for why the NPV falls from $five,822 in Figure 14.2 to
$three,180 in Figure 14.4 despite the fact that the funding in running capital in years 1 to 4 is
completely recovered in years five to 7. - ANSThe NPV falls from $5,822 in Figure 14.2 to
$three,a hundred and eighty in Figure 14.4 even though the operating capital in years 1 to
four is absolutely recovered in years five to 7 because of the PV of Earlier Cash Outflows is
greater than the PV of later Cash Inflows.
Based on the Data Table in Figure 14.6, if the Unit Sales Scale Factor is 100%, what's the
maximum Date 1 Real Cost of Capital at which the task could be perfect? Why? - ANSIf the
Unit Sales Scale Factor is one hundred%, the most Date 1 Real Cost of Capital at which the
project may be suited is 15% due to the fact after that point the NPV turns into terrible, and
therefore unacceptable.
Based at the Data Table in Figure 14.6, if the Date 1 Real Cost of Capital is eleven.Zero%,
what is the minimal Unit Sales Scale Factor at which the mission can be proper? Why? -
ANSThe minimal Unit Sales Factor at which the task might be appropriate is 90% due to the
fact this is the primary sales element in which the NPV is wonderful.
List all the number one variations between the With Investment and Without Investment
Cash Flows which are reflected in the Differential Project Cash Flows in row 62 of Figure
15.2. - ANSWith Investment Cash Flows the firm's 12 months 1 exertions charges will be
reduced to $1,300 and revenues and different coins charges will stay the equal. The
variations are: The preliminary investment in Year 0, The Salvage Value in Year5, an growth
in depreciation, and a decrease in exertions costs.
List the five equal techniques for company and mission valuation. - ANSEquivalent Methods:
Adjusted Present Value, Free Cash Flow to Equity, Free Cash Flow to the Firm, Dividend
Discount Model, Residual Income.
Valuation Methods: Free Cash Flow to Equity, Dividends, Tax Shield Benefit, Free Cash Flow
to the Firm, Economic Profit.
Fully listing all the vast steps for calculating the Value Added by way of the Firm with the
Adjusted Present Value technique in Figure 10.2. - ANSa) Take the Free Cash Flow to the
Firm and cut price at he Unlevered Cost of Equity Capital to get the Value of the Unlevered
Firm.
B) Take the Tax Shield Benefit and discount on the Cost of Risk-unfastened Debt to get the
Value of the Tax Shield.
C) Sum the Value of the Unlevered Firm and the Value if the Tax Shield to get the Value of
the Firm.
D) Subtract Date 0 Capital to get the Value Added with the aid of the Firm.
Fully list all of the vast steps for calculating the Value Added through the Firm with the Free
Cash Flow to Equity approach in Figure 10.3. - ANSa) Take the Free Cash Flow to Equity
and the cut price on the Levered Cost of Equity Capital to reap the Value of Equity.
B) Take the Cash Flow to Debtholders and cut price on the Cost of Risk-unfastened Debt to
acquire the Value of Debt.
C) Sum the Value of the Equity and the Value of Debt to get the Value of the Firm.
D) Subtract Date 0 Capital to get the Value Added by the Firm
Fully listing all of the broad steps for calculating the Value Added through the Firm with the
Free Cash Flow to Firm approach in Figure 10.4. - ANSa) Take the Free Cash Flow to the
Firm and bargain at the Cost of Firm Capital (WACC) to acquire the Value of the Firm.
B) Subtract Date 0 Capital to get the Value Added with the aid of the Firm.
Fully listing all of the vast steps for calculating the Value Added by using the Firm with the
Dividend Discount Model approach in Figure 10.5. - ANSa) Take the Dividends and cut price
on the Levered Cost of Equity Capital to reap the Value of the Equity.
B) Take the Cash Flow to Debtholders and bargain at the Cost of Risk-loose Debt to obtain
the Value of Debt.
C) Sum the Value of the Equity and the Value of Debt to get the Value of the Firm.
D) Subtract Date 0 Capital to get he Value Added via the Firm.
Fully list all the large steps for calculating the Value Added with the aid of Firm with the
Residual Income technique in Figure 10.6. - ANSa) Take the Economic Profit and cut price
on the Cost of the Firm Capital (WACC) to gain the Value of Economic Profit.
B) Add the Date zero Book Value of the Firm to get the Value of the Firm.
C) Subtract Date zero Capital to get the Value Added through the Firm.
, Fully provide an explanation for why the Discount Rate is growing over the years in Figure
14.1. - ANSBecause the marginally growing Real Cost of Capital is being compounded
through the increasing Inflation Rate; This consequences in an increasing Discount Rate.
What is the primary gain of forecasting the inflation rate separately for calculating Net
Present Value in Figure 14.1-14.2? - ANSThis ensures that we are constant within the way
that we're treating the inflation component of cash flows within the numerator of the NPV
calculation and the inflation factor of the cut price price within the denominatior of the NPV
calculation.
State all of the steps for calculating the Operating Cash Flows in Figure 14.2, beginning with
Sales. - ANSa. Compute Sales Revenue by using multiplying Unit Sales and Sales
Revenue/Unit
b. Compute Variable Costs by using multiplying Unit Sales and Variable Costs/Unit and
subtract from Sales Revenue to get the Gross Margin
c. Add Cash constant prices and Depreciation to get Total Fixed Costs
d. Subtract Total Fixed Costs from Gross Margin to get Operating Profit
e. Subtract Taxes to get Net Profit
f. Add Depreciation again in
g. You now have Operating Cash Flow
Fully provide an explanation for why the NPV falls from $five,822 in Figure 14.2 to
$three,180 in Figure 14.4 despite the fact that the funding in running capital in years 1 to 4 is
completely recovered in years five to 7. - ANSThe NPV falls from $5,822 in Figure 14.2 to
$three,a hundred and eighty in Figure 14.4 even though the operating capital in years 1 to
four is absolutely recovered in years five to 7 because of the PV of Earlier Cash Outflows is
greater than the PV of later Cash Inflows.
Based on the Data Table in Figure 14.6, if the Unit Sales Scale Factor is 100%, what's the
maximum Date 1 Real Cost of Capital at which the task could be perfect? Why? - ANSIf the
Unit Sales Scale Factor is one hundred%, the most Date 1 Real Cost of Capital at which the
project may be suited is 15% due to the fact after that point the NPV turns into terrible, and
therefore unacceptable.
Based at the Data Table in Figure 14.6, if the Date 1 Real Cost of Capital is eleven.Zero%,
what is the minimal Unit Sales Scale Factor at which the mission can be proper? Why? -
ANSThe minimal Unit Sales Factor at which the task might be appropriate is 90% due to the
fact this is the primary sales element in which the NPV is wonderful.
List all the number one variations between the With Investment and Without Investment
Cash Flows which are reflected in the Differential Project Cash Flows in row 62 of Figure
15.2. - ANSWith Investment Cash Flows the firm's 12 months 1 exertions charges will be
reduced to $1,300 and revenues and different coins charges will stay the equal. The
variations are: The preliminary investment in Year 0, The Salvage Value in Year5, an growth
in depreciation, and a decrease in exertions costs.
