1. What does an increasing collection period for accounts receivable suggest about a firm's credit policy?

A.The credit policy may be too lenient.

B.The credit policy is too restrictive.

C.The firm is probably losing qualified customers.

D.Nothing, because the collection period has no relationship to a firm's credit policy.

2. When projecting the balance sheet, what happens when the initial balance sheet yields estimated total assets greater than the sum of total liabilities and equity?

A.The company will not be able to pay for expenses in the future.

B.The company has negative shareholder's equity.

C.The company projected a loss.

D.The company will need additional financing from external sources like the revolver.

3. What information can be gained from sources such as RMA and Reuters?

A.Forecast of earnings.

B.The general economic condition.

C.Benchmarks which can be used to determine a company's relative position within its industry.

D.Elaborations of financial statement disclosures.

4. Which of the following is incorrect?

A.The two stage framework for valuation is derived from the fundamental analysis of the company's cash flow generation potential.

B.DCF is also referred to as the "perpetuity" or intrinsic model.

C.For the model results to be correct, both the DCF and the Multiples results must be equal.

D.Multiples are also referred to as "Comps" or relative valuation models.

5. Which of the following is not true?

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

B.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.

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

D.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.

6. Over a 5-year projected forecast, you find that a company's average annual growth rate of Unlevered Free Cash Flow is 15%. In a DCF analysis, should you use a 15% perpetual growth rate to calculate the Terminal Value under the Gordon Growth Method?

A.No. With a fast-growing company, you should only calculate the Terminal Value using the multiples method.

B.Yes. The Terminal Value rarely comprises a significant portion of the company's net present value, so you should not spend too much time determining the correct perpetual growth rate.

C.No. It is likely that the company's growth will slow after the forecast period, so you should use a slightly lower growth rate, such as 10%.

D.Yes. Future growth rates are difficult to predict, and so historical results are the best estimate of future growth.

E.No. While future growth rates are difficult to predict, it is unreasonable to assume that a company can grow at a rate significantly higher than the overall economy forever, so a lower rate, closer to GDP growth or inflation, should be used.

7. Why is the amount of debt in a company's capital structure important to a financial analyst?

A.Debt is equal to total assets.

B.Equity is riskier than debt.

C.Debt implies risk.

D.Debt is more costly than equity.

8. What is the typical effect of a stock buyback and dividend declaration on shareholders' equity?

A.Shares outstanding and retained earnings will decrease.

B.Shares outstanding and retained earnings will increase.

C.The increase in shares outstanding will offset the decrease in retained earnings.

D.Total shareholders' equity will increase.