Financial Modeling Exam 2 Questions and Answers 100% Pass

Financial Modeling Exam 2 Questions and Answers 100% Pass List the five equivalent methods for firm and project valuation. - Equivalent 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 list all the broad steps for calculating the Value Added by the Firm with the Adjusted Present Value method in Figure 10.2. - a) Take the Free Cash Flow to the Firm and discount at he Unlevered Cost of Equity Capital to get the Value of the Unlevered Firm. b) Take the Tax Shield Benefit and discount at the Cost of Risk-free 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. 2Katelyn Whitman, All Rights Reserved © 2025 d) Subtract Date 0 Capital to get the Value Added by the Firm. Fully list all the broad steps for calculating the Value Added by the Firm with the Free Cash Flow to Equity method in Figure 10.3. - a) Take the Free Cash Flow to Equity and the discount at the Levered Cost of Equity Capital to obtain the Value of Equity. b) Take the Cash Flow to Debtholders and discount at the Cost of Risk-free 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 the Value Added by the Firm Fully list all the broad steps for calculating the Value Added by the Firm with the Free Cash Flow to Firm method in Figure 10.4. - a) Take the Free Cash Flow to the Firm and discount at the Cost of Firm Capital (WACC) to obtain the Value of the Firm. b) Subtract Date 0 Capital to get the Value Added by the Firm. Fully list all the broad steps for calculating the Value Added by the Firm with the Dividend Discount Model method in Figure 10.5. - a) Take the Dividends and discount at the Levered Cost of Equity Capital to obtain the Value of the Equity. b) Take the Cash Flow to Debtholders and discount at the Cost of Risk-free 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. 3Katelyn Whitman, All Rights Reserved © 2025 d) Subtract Date 0 Capital to get he Value Added by the Firm. Fully list all the broad steps for calculating the Value Added by Firm with the Residual Income method in Figure 10.6. - a) Take the Economic Profit and discount at the Cost of the Firm Capital (WACC) to obtain the Value of Economic Profit. b) Add the Date 0 Book Value of the Firm to get the Value of the Firm. c) Subtract Date 0 Capital to get the Value Added by the Firm. Fully explain why the Discount Rate is increasing over the years in Figure 14.1. - Because the slightly increasing Real Cost of Capital is being compounded by the increasing Inflation Rate; This results in an increasing Discount Rate. What is the main advantage of forecasting the inflation rate separately for calculating Net Present Value in Figure 14.1-14.2? - This guarantees that we are consistent in the way that we are treating the inflation component of cash flows in the numerator of the NPV calculation and the inflation component of the discou