Q&A Hero

Q: In equation form, the equity valuation cash flow is defined as: a. Net Income + Depreciation and Amortization Expense Change in Net Operating Working Capital + Capital Expenditures + Net Debt Issues b. Net Income + Depreciation and Amortization Expense + Change in Net Operating Working Capital + Capital Expenditures + Net Debt Issues c. Net Income + Depreciation and Amortization Expense Change in Net Operating Working Capital + Capital Expenditures Net Debt Issues d. Net Income + Depreciation and Amortization Expense Change in Net Operating Working Capital Capital Expenditures + Net Debt Issues

Q: What is the present value of the venture's expected future cash flows called? a. going-concern value b. net present value c. terminal value d. reversion value

Q: Surplus cash is the cash remaining after required cash, all operating expenses, reinvestments, and dividend payouts are made.a. Trueb. False

Q: Equity valuation cash flow is defined as net income before taxes available to venture equity investors. a. True b. False

Q: The reversion value is the future value of the terminal value. a. True b. False

Q: The reversion value of a venture is the present value of the venture's terminal value. a. True b. False

Q: While accounting for the past is all well and good, an investor seeks to quantify and value the future. a. True b. False

Q: Net operating working capital is current assets other than surplus cash less interest-bearing long-term liabilities. a. True b. False

Q: A pseudo dividend involves excess cash that does not need to be invested in a venture's assets or operations, and may be invested elsewhere for a period of time. a. True b. False

Q: The present value of a venture is the value today of all future cash flows discounted at the investor's required rate of return. a. True b. False

Q: A post-money valuation differs from a pre-money valuation by the cost of financial capital. a. True b. False

Q: Finding the present value of the horizon value produces the venture's reversion value. a. True b. False

Q: The explicit forecast period is the two- to ten-year period in which the venture's financial statements are explicitly forecast. a. True b. False

Q: A venture's reversion value is the present value of ongoing expenses. a. True b. False

Q: The pseudo dividend approach to valuation treats surplus cash either as stripped out while not in use or as employed outside the venture and stored in a zero NPV investment. a. True b. False

Q: Required cash is the amount of cash required to operate a venture through its day-to-day business. a. True b. False

Q: Sweat equity is an individual's work-related, nonfinancially compensated contribution to the enhancement of a venture's value. a. True b. False

Q: The terminal value is the value of the venture at the beginning of the explicit forecast period. a. True b. False

Q: When projecting maximum dividends, changes in surplus cash will be paid out as dividends. a. True b. False

Q: The valuation method calculating pseudo dividends involves zero explicitly forecasted dividends and an adjustment to working capital to strip surplus cash. a. True b. False

Q: The pseudo dividend approach to valuation treats equity infusions and withdrawals in a "just-in-time" fashion. a. True b. False

Q: As used in this textbook, the terminal value is the same as the horizon value. a. True b. False

Q: Applying the maximum dividend and pseudo dividend approaches to valuation results in different valuation estimates. a. True b. False

Q: Post-money valuation is the pre-money valuation of a venture plus all monies previously contributed by the venture's founders. a. True b. False

Q: The capitalization (cap) rate is the spread between the discount rate and the growth rate of cash flow in the terminal value period. a. True b. False

Q: The equity valuation method is the process of projecting and then discounting the relevant cash flows available to providers of debt capital. a. True b. False

Q: The wider the capitalization (cap) rate (i.e., the discount rate minus the growth rate in the terminal period), the higher the terminal value. a. True b. False

Q: The stepping-stone year is the second year after the explicit forecast period when valuing a venture. a. True b. False

Q: The valuation method involving the projection of maximum dividends involves explicitly forecasted dividends to provide surplus cash which is positive. a. True b. False

Q: The terminal or horizon value is the value of a venture at the end of its explicit forecast period. a. True b. False

Q: Pre-money valuation is the present value of a venture prior to a new money investment. a. True b. False

Q: The valuation approach involving discounting present value cash flows for risk and delay is called discounted cash flow (DCF). a. True b. False

Q: The stepping-stone year is the first year before the explicit forecast period. a. True b. False

Q: The valuation method involving the extraction of pseudo dividends treats changes in surplus cash as possible free cash flows to equity. a. True b. False

Q: Indicate whether the statement is true or false.Surplus cash is the amount of cash required to pay scheduled dividends for the next quarter.a. Trueb. False

Q: Determine a venture's sustainable growth rate based on the following information: sales = $1,000,000; net income = $100,000; common equity at the beginning of the year = $500,000; and retention rate = 50%. a. 10% b. 15% c. 20% d. 25%

Q: Which of the following ratios is not part of the standard return on equity (ROE) model? a. net profit margin b. asset turnover c. equity multiplier d. retention rate

Q: During which round of financing is a venture typically most accurate in forecasting sales? a. seasoned financing b. mezzanine financing c. first-round financing d. startup financing

Q: The increase in accounts payables and accruals that occur with a sales increase is called: a. spontaneously generated funds b. additional funds needed c. addition in retained earnings d. financial capital needed

Q: If a venture has a return on assets (ROA) of 12%, an equity multiplier based on beginning equity of 3.0 times, and a sustainable growth rate of 18%, the retention rate would be: a. 60% b. 30% c. 50% d. 40%

Q: Determine a firm's return on assets percentage based on the following information: sustainable growth rate = 20%; total assets = $500,000; beginning-of-year common equity = $200,000; and dividend payout percentage = 60%. a. 10.0% b. 22.5% c. 20.0% d. 17.5%

Q: Which of the following is not considered to be a major emphasis during the rapid-growth stage in a successful venture's life cycle? a. choose organizational form b. create and build value c. obtain additional financing d. examine exit opportunities

Q: When projecting financial statements, one would first __________, and then proceed to __________. a. project the balance sheet; forecast sales b. forecast sales; project the income statement c. forecast sales; project the balance sheet d. forecast sales; project the statement of cash flows

Q: Which of the following life cycle stages would generally be associated with the second lowest sales forecasting accuracy? a. early-maturity stage b. rapid-growth stage c. survival stage d. startup stage

Q: Your firm recorded sales for the most recent year of $10 million generated from an asset base of $7 million, producing a $500,000 net income. Sales are projected to grow at 20%, causing spontaneous liabilities to increase by $200,000. In the most recent year, $200,000 was paid out as dividends, and the current payout ratio will continue in the upcoming years. What is your firm's AFN? a. $200,000 b. $600,000 c. $840,000 d. $960,000

Q: A venture's common equity account increased by $100,000 the past year and ended the year at $500,000. What was its sustainable sales growth rate? a. 15% b. 30% c. 20% d. 25%

Q: Determine a firm's financial policy multiplier based on the following information: sustainable growth rate = 20%; net profit margin = 10%; and asset turnover = 2.0 times. a. 1.00 b. 1.25 c. 1.50 d. 2.00

Q: A new venture usually begins its sales forecast by first: a. forecasting industry sales and expressing the venture's sales as a percent of industry sales b. using a "bottom-up" market-driven approach c. extrapolating past sales d. working with existing and potential customers

Q: Which of the following is not a step in forecasting sales for a seasoned firm? a. forecast future growth rates based on possible scenarios and the probabilities of those scenarios b. attempt to corroborate the projected sales growth rates with industry growth rates and the firm's own past market share c. refine the sales forecast by using the sales force as a direct contact with both existing and potential customers d. consider the effects of changes in the firm's debt/equity blend on the sales forecasts

Q: Which of the following is a forecasting method used to project financial statements? a. percent-of-sales method b. percent-of-expenses method c. return on equity method d. additional funds needed method

Q: If beginning-of-period common equity is $200,000 and end-of-period common equity is $300,000, the sustainable growth rate is: a. 33% b. 40% c. 50% d. 67%

Q: A firm projects net income to be $500,000, intends to pay out $125,000 in dividends, and had $2 million of equity at the beginning of the year. The firm's sustainable growth rate is: a. 5.50% b. 18.75% c. 6.25% d. 4.69%

Q: A sales growth rate based on the retention of profits is referred to as the: a. sustainable sales growth rate b. spontaneous sales growth rate c. nominal sales growth rate d. weighted average sales growth rate

Q: The financial funds needed to acquire assets necessary to support a firm's sales growth is called: a. spontaneously generated funds b. additional funds needed c. addition in retained earnings d. financial capital needed

Q: Which of the following would increase a firm's need for additional funds? a. an increase in the profit margin b. a decrease in the expected sales growth rate c. a decrease in assets d. an increase in the dividend payout rate

Q: Internally generated funds which are available for distribution to owners of for reinvestment back into the business to support future growth can be characterized by which of the following? a. operating income b. operating cash flow c. net income d. net cash flow

Q: A firm has net income of $320,000 and sales of $3,200,000. Its assets total $2,000,000, the equity at the beginning of the year was $1,600,000, and dividends paid were $80,000. What is the sustainable growth rate? a. 5.50% b. 15.00% c. 6.25% d. 4.75%

Q: A venture's common equity was $50,000 at the end of last year. If the venture's common equity at the end of this year was $60,000, what was its sustainable sales growth rate? a. 25% b. 10% c. 15% d. 20%

Q: Use the following information to estimate a venture's sustainable growth rate: net income = $200,000; total assets = $1,000,000; equity multiplier based on beginning common equity = 2.0 times; and retention rate = 25%. a. 5% b. 25% c. 20% d. 10%

Q: Public or seasoned financing is generally associated with which of the following life cycle stages? a. startup stage b. survival stage c. early-maturity stage d. development stage

Q: When long-term financial planning efforts set cash as a percentage of sales or as a fixed dollar amount for planning purposes, the projected cash flow statement is said to be a __________ forecasting statement. a. dynamic b. passive c. conservative d. checking

Q: Which of the following statements is not true? a. forecasting sales is the first step in creating projected financial statements b. forecasting sales tends to be more accurate for mature ventures than for early-stage ventures c. forecasting sales is relatively unimportant for early-stage ventures that have little historical financial data d. forecasting sales should consider the likely impact of major operating changes

Q: During which life cycle stage is a venture typically most accurate in forecasting sales? a. survival stage b. startup stage c. development stage d. early-maturity stage

Q: An expected value is: a. a simple average of a set of scenarios or possible outcomes b. a weighted average of a set of scenarios or possible outcomes c. the highest scenario value or outcome d. the lowest scenario value or outcome

Q: Lola is in the process of forecasting the sales growth rate for an early-stage venture specializing in the production of durable running shoes. Lola predicts a 0.20 probability of an 80% growth in sales, a 0.30 probability of a 60% growth in sales, a 0.40 probability of a 40% growth in sales, and a 0.10 probability of a 10% decrease in sales. What is the expected sales growth rate of the venture? a. 47% b. 49% c. 51% d. 53%

Q: A complete balance sheet and income statement mechanically imply a working statement of cash flows.a. Trueb. False

Q: The sustainable sales growth rate is equal to ROA times the retention ratio. a. True b. False

Q: The constant-ratio forecasting method is a variant of the percent-of-sales forecasting method. a. True b. False

Q: The weighted average of a set of possible outcomes or scenarios is known as the expected value. a. True b. False

Q: Additional funds needed (AFN) is the gap remaining between the financial capital needed and that funded by spontaneously generated funds and retained earnings. a. True b. False

Q: An increase in accounts receivable will require additional financing unless the increase is offset by an equal decrease in another asset account. a. True b. False

Q: Increases in accounts receivable and accounts payable that accompany sales increases are called spontaneously generated funds. a. True b. False

Q: Long-term financial planning begins with a forecast of annual working capital needs. a. True b. False

Q: A firm's maximum sustainable sales growth rate occurs at a retention ratio of 100%. a. True b. False

Q: In a typical venture's life cycle, the rapid-growth stage involves creating and building value, obtaining additional financing, and examining exit opportunities. a. True b. False

Q: Sales forecasts usually are based on either a single specific scenario or weighted averages of several possible realizations. a. True b. False

Q: Preparing a projected statement of cash flows serves as check on the projected income statement and projected balance sheet. a. True b. False

Q: Public or seasoned financing typically occurs during the survival stage of a venture's life cycle. a. True b. False

Q: Spontaneously generated funds are increases in accounts receivable and accounts payable that accompany sales increases. a. True b. False

Q: The volatility of a firm's cash balance will steadily decrease as the firm progresses from the survival stage to the rapid-growth stage. a. True b. False