1. Acme Dynamite is maintaining a solid debt ratio of .37 with total assets of $1,250 million. If its D/E ratio is .65 and it has NOI of $150 million, what is its return on equity? a. 27.6% b. 21.1% c. 14.6% d. 8.9% e. None of the above. 2. Now that you calculated the ROE for Acme Dynamite, if the firm pays a dividend with a DPR of 22%, what is its sustainable growth rate? a. 21.5% b. 16.5% c. 11.4% d. 6.9% e. None of the above. 3. Acme Dynamite has a beta of 1.5. If the risk-free rate is 3.5% and the expected market return is 7.6%, what is the company's cost of equity? 4. Which of the following is false regarding the use of debt? a. Debt decreases ROE if the use of borrowed funds is greater than the cost of capital. b. The actual cost of debt is modified by the tax shelter aspects of interest deductibility. c. Debt increases fixed costs and therefore affects the breakeven point. d. Subordinated debt is not safe it is subordinated to preferred stock. 5. A company's balance sheet has changed due to an increase in common stock issued. Which of the following would be effects to the company's finances? I. Earnings per share will be diluted and ROE would decline. II. WACC would probably increase and it would be harder to satisfy shareholder expected returns. III. Debt/Equity ratio would increage as leverage declines. IV. Book value of the company would increase. a. All are effects. b. Only I, II, and III are effects. c. Only I, II and IV are effects d. None are effects e. Only II, III, and IV are effects. 6. A company has EBIT of $12,750,000 and interest on its debt of $5,275,000. What is its debt coverage ratio? 7. The cash flows of a project have a discount factor of 6.85% an NPV of zero. What is the project's IRR? (Record your answer like this: XX.X with NO percent sign). 8. The primary reason Payback isn't regularly used as a decision-making analytic is because it doesn't take time value of money into consideration. TF 9. If a firm has no subsidies from any source, tax rate of 32%, CAPEX of $12,575,000, depreciation of $1,267,000, unchanged net working capital and EBIT of $21,865,000, what is it's FCF for the year? 10. A firm has 50 million shares outstanding, and a value of $7.54 billion. If its growth rate is 8.2% and its WACC is 15.4%, what is the firm's FCF per share? 11. Which of the following is not a component in the calculation of free cash flow? a. Depreciation b. Market Capitalization c. EBIT d. Change in Net Working Capital 12. A firm with a high debt/equity ratio will always have higher FCF than one with a lower debt/equity ratio. 13. What is the difference between a Subchapter S and Subchapter C corporation? a. Subchapter S Corps have only two owners, but Subchapter C Corps allow up to 100 shareholders. b. Subchapter S Corps pass through earnings to the shareholders, but Subchapter C Corps are taxed at the corporate level, and any salaries paid are taxed as earned income. c. Both formats are governed by similar provisions regarding ownership and capital generation. The distinguishing features between the two formats are related to taxation and flexibility of ownership. d. Only b and c above are differences. e. None of the above are differences. 14. T or F: The S Corp structure is specifically advantageous for new busineseses because it allows owners to offer their income from other sources using past-year accumulated losses, thereby reducing their overall tax liability. 15. T or F: A traditional C Corporation is treated as a separate legal entity by the IRS. Accordingly, certain fringe benefits provided for employee welfare such as healthcare and life insurance are deductible from corporate profits, which helps reduce the corporation's tax burden 16. T or F: Artificial entities such as trusts and other corporations are not entitled to ownership of stock in a Subchapter S Corporation, but trusts and other artificial entities can be shareholders in Subchapter C Corporations. 17. Which of the following are parts of the "Entrepreneurial Process"? I. Development of the business opportunity (the Concept) II. Gathering Resources III. Raising Capital IV. Protection of Intellectual Property V. Managing and Building Operations a. All are parts of the Entrepreneurial Process b. Only I, II, and N are parts. c. All except IV are parts. d. Only I, II, and V are parts. e. None of them are parts. 18. Which of these is not a characteristic of an LLC? a. Board of directors not required and unlimited members are allowed. b. An LLC can be formed by a single individual, in which case it is usually referenced as a "single member LLC" n. c. The owners of a limited liability company are often referenced as "members", as opposed to "stockholders". d. There is no recourse against owners for business liabilities. e. Income is "double-taxed" with an LLC. 19. T or F: Unless otherwise advised, A C Corporation is the default designation provided to a freshly incorporated company. 20. T or F : A business incubator is a specialized service that provides space and professional input to start-ups, and they often take a financial stake in the business. 21. Start-up accelerators are like incubators except that 2. Accelerators can provide some venture financing - up to 10% of ownership. b. Accelerators are designed to assist start-ups that have already shown or demonstrated a product of value. c. Accelerators aid in bringing a start-up public. d. Accelerators provide mentorships and advice unlike an incubator 22. T and F: A term sheet is a precursor to an investor's package and does not provide any details regarding how a start-up is being financed or how the start-up will function. 23. Which of the following are accurate statements regarding Crowdfunding: I. Crowdfunding relies on unreliable behaviors such as herd behavior and anchoring. II. Used typically in LLC or partnership situations. III. Has the advantage of not relying on geographic closeness. IV. Usually results in friends and family as participants. V. Almost always a viable product is available and ready to view in successful campaigns. 2. Only I is accurate. b. I, II and V are accurate c. All are accurate. d. None are accurate. e All are accurate except I. 1. Acme Dynamite is maintaining a solid debt ratio of .37 with total assets of $1,250 million. If its D/E ratio is .65 and it has NOI of $150 million, what is its return on equity? a. 27.6% b. 21.1% c. 14.6% d. 8.9% e. None of the above. 2. Now that you calculated the ROE for Acme Dynamite, if the firm pays a dividend with a DPR of 22%, what is its sustainable growth rate? a. 21.5% b. 16.5% c. 11.4% d. 6.9% e. None of the above. 3. Acme Dynamite has a beta of 1.5. If the risk-free rate is 3.5% and the expected market return is 7.6%, what is the company's cost of equity? 4. Which of the following is false regarding the use of debt? a. Debt decreases ROE if the use of borrowed funds is greater than the cost of capital. b. The actual cost of debt is modified by the tax shelter aspects of interest deductibility. c. Debt increases fixed costs and therefore affects the breakeven point. d. Subordinated debt is not safe it is subordinated to preferred stock. 5. A company's balance sheet has changed due to an increase in common stock issued. Which of the following would be effects to the company's finances? I. Earnings per share will be diluted and ROE would decline. II. WACC would probably increase and it would be harder to satisfy shareholder expected returns. III. Debt/Equity ratio would increage as leverage declines. IV. Book value of the company would increase. a. All are effects. b. Only I, II, and III are effects. c. Only I, II and IV are effects d. None are effects e. Only II, III, and IV are effects. 6. A company has EBIT of $12,750,000 and interest on its debt of $5,275,000. What is its debt coverage ratio? 7. The cash flows of a project have a discount factor of 6.85% an NPV of zero. What is the project's IRR? (Record your answer like this: XX.X with NO percent sign). 8. The primary reason Payback isn't regularly used as a decision-making analytic is because it doesn't take time value of money into consideration. TF 9. If a firm has no subsidies from any source, tax rate of 32%, CAPEX of $12,575,000, depreciation of $1,267,000, unchanged net working capital and EBIT of $21,865,000, what is it's FCF for the year? 10. A firm has 50 million shares outstanding, and a value of $7.54 billion. If its growth rate is 8.2% and its WACC is 15.4%, what is the firm's FCF per share? 11. Which of the following is not a component in the calculation of free cash flow? a. Depreciation b. Market Capitalization c. EBIT d. Change in Net Working Capital 12. A firm with a high debt/equity ratio will always have higher FCF than one with a lower debt/equity ratio. 13. What is the difference between a Subchapter S and Subchapter C corporation? a. Subchapter S Corps have only two owners, but Subchapter C Corps allow up to 100 shareholders. b. Subchapter S Corps pass through earnings to the shareholders, but Subchapter C Corps are taxed at the corporate level, and any salaries paid are taxed as earned income. c. Both formats are governed by similar provisions regarding ownership and capital generation. The distinguishing features between the two formats are related to taxation and flexibility of ownership. d. Only b and c above are differences. e. None of the above are differences. 14. T or F: The S Corp structure is specifically advantageous for new busineseses because it allows owners to offer their income from other sources using past-year accumulated losses, thereby reducing their overall tax liability. 15. T or F: A traditional C Corporation is treated as a separate legal entity by the IRS. Accordingly, certain fringe benefits provided for employee welfare such as healthcare and life insurance are deductible from corporate profits, which helps reduce the corporation's tax burden 16. T or F: Artificial entities such as trusts and other corporations are not entitled to ownership of stock in a Subchapter S Corporation, but trusts and other artificial entities can be shareholders in Subchapter C Corporations. 17. Which of the following are parts of the "Entrepreneurial Process"? I. Development of the business opportunity (the Concept) II. Gathering Resources III. Raising Capital IV. Protection of Intellectual Property V. Managing and Building Operations a. All are parts of the Entrepreneurial Process b. Only I, II, and N are parts. c. All except IV are parts. d. Only I, II, and V are parts. e. None of them are parts. 18. Which of these is not a characteristic of an LLC? a. Board of directors not required and unlimited members are allowed. b. An LLC can be formed by a single individual, in which case it is usually referenced as a "single member LLC" n. c. The owners of a limited liability company are often referenced as "members", as opposed to "stockholders". d. There is no recourse against owners for business liabilities. e. Income is "double-taxed" with an LLC. 19. T or F: Unless otherwise advised, A C Corporation is the default designation provided to a freshly incorporated company. 20. T or F : A business incubator is a specialized service that provides space and professional input to start-ups, and they often take a financial stake in the business. 21. Start-up accelerators are like incubators except that 2. Accelerators can provide some venture financing - up to 10% of ownership. b. Accelerators are designed to assist start-ups that have already shown or demonstrated a product of value. c. Accelerators aid in bringing a start-up public. d. Accelerators provide mentorships and advice unlike an incubator 22. T and F: A term sheet is a precursor to an investor's package and does not provide any details regarding how a start-up is being financed or how the start-up will function. 23. Which of the following are accurate statements regarding Crowdfunding: I. Crowdfunding relies on unreliable behaviors such as herd behavior and anchoring. II. Used typically in LLC or partnership situations. III. Has the advantage of not relying on geographic closeness. IV. Usually results in friends and family as participants. V. Almost always a viable product is available and ready to view in successful campaigns. 2. Only I is accurate. b. I, II and V are accurate c. All are accurate. d. None are accurate. e All are accurate except