PNW corporation reports 2015 and 2016 revenues of $80 million and $92 million, respectively. If we expect prior growth to persist, we would forecast...

2.. PNW corporation reports 2015 and 2016 revenues of $80 million and $92 million, respectively. If we expect prior growth to persist, we would forecast a revenue growth rate of:

A. 20%

B. 15%

C. 35%

D. 25%

12.. What will typically occur with an increase in annual sales?

A. Increases in cost of goods sold and selling, general & administrative expenses.

B. Increases in the effective and statutory tax rate.

C. Decreases in accrued expenses and prepaid assets.

D. Increases in cost of goods sold and interest expense.

16.. You are planning to create DCF analysis using Unlevered Free Cash Flow and the Multiples Method for Terminal Value. You also have a 5-year 3-statement projection model for the company you're analyzing. Aside from the appropriate discount rate, you have all of the financial information necessary to complete DCF analysis.

True

False

19.. Which of the following is not true?

A. Net income reported on the income statement is linked to the statement of retained earnings, which in turn is linked to the balance sheet.

B. Understanding how the financial statements articulate, helps us to analyze transactions and events and to understand how events affect each financial statement separately and all four together.

C. The Statement of Cash Flows needs to be completed first, in order for the other financials to be linked.

D. Articulation refers to the fact that the four financial statements are linked to each other and that changes in one statement affect the other three.

21.. When calculating a company's cost of capital, you find that the company has Preferred Stock. Should Preferred Stock be treated like equity (no tax effect) or debt (multiplied by (1 - Tax Rate)) in the WACC calculation?

A. It should be treated like debt, just like it is in the Enterprise Value calculation, because Preferred Stock has required dividends just like Debt has required interest payments.

B. It should be treated like debt because Preferred Stock is above common stock in the capital structure "hierarchy."

C. It depends on whether you are calculating Levered FCF or Unlevered FCF.

D. It should be treated like equity because Preferred Stock Dividends are not tax-deductible.

23.. What causes the asset turnover ratios to be too low?

A. Downsizing.

B. Too small an investment in assets and robust sales.

C. High profitability.

D. Too large an investment in assets and sluggish sales.

26.. Let's say that we're creating projections for a company, and in its historical filings Depreciation & Amortization and Stock-Based Compensation are NOT listed as separate items on its income statement. Which income statement line items might INCLUDE these figures, and how should we project these items in future years?

A. If they're not listed on the income statement, the company does not have significant expenses in either category so we don't need to doanything.

B. They almost always show up exclusively in COGS; you should break them out as separate line items and project them separately going forward.

C. They always show up exclusively in operating expenses; you only need them for the cash flow statement so you don't need to break them out separately in income statement projections.

27.. Which of the following is NOT a profitability ratio?

A. ROA

B. Net Profit Margin

C. Cash Conversion Cycle

D. Gross Profit Margin

28.. Which of the following statements is incorrect?

A. Common-size financial statements allow analysts to compare different sized companies.

B. Common-size balance sheets have all items expressed as a percentage of total assets.

C. Common-size income statements have all items expressed as a percentage of net income.

D. Common-size financial statements allow analysts to identify changes within a company over time.

29.. Which is not true when preparing the Statement of Cash Flows section of the forecasted model?

A. Purchases of investments and intangible assets will be reported as cash outflows from investing activities.

B. Dividend payments will be reported as cash outflows for financing activities.

C. Share buybacks will be reported as cash outflows for investing activities.

D. Issuance of stock and debt will be reported as cash inflows from financing activities.

D. They may show up in either operating expenses or COGS, or in both; it's better to break them out as separate line items by modifying the historical statements and then project them separately going forward.