1. Which of the following types of businesses do you expect to show the highest degree of seasonality in quarterly earnings? a. Fast Food Restaurants (e.g. McDonalds). b. Supermarkets and Grocery Stores C. Diversified Freight and Transport Companies d. Prescription Pharmacies e. Cotton Farming 2. Which of the following types of businesses do you expect to show the lowest degree of seasonality in quarterly earnings? a. Consumer Electronics b. Coal Mining and Extraction C. Cotton Farming d. Commercial Passenger Airlines e. Manufacturers of allergy medicine 3. Which of the following situations will most likely result in managers deciding to increase the outlays for working capital? a. they expect that the sales will shrink in the future, b. they expect that operating efficiency will improve C. the way of doing business is not likely to change d. Working Capital Turnover is projected to decrease due to declining sales. e. Days Sales Outstanding is expected to decrease despite no change in sales. 11. Consider a company with the following attributes. Value of debt is 200 with kd of 12%. Value of the firm is 300 and the WACC is 14%. How much is the ke for the firm. a. 12% b. 42% C. 08% d. 14% e. 18% 16. Which of the following is true regarding the sensitivity of the Free Cash Flow valuation model to errors? a. The future terminal (continuation) cash flow is extremely sensitive to forecasting and growth rate errors. b. All else being equal, a terminal (continuation) value computed 10 years from today with a 3% overstatement in the growth rate will bias the intrinsic valuation more than if the terminal (continuation) value computation were made in 6 years with a 3% overstatement in growth. c. Financial statements after the year 2002 provide less accurate information regarding the market value of debt than financial statements prepared in the late 1980's. d. Cash flow based statements provide more forward looking information than do accrual based statements and valuation methods. e. Free Cash Flow valuations are riddled with errors and do a poorer job of explaining and forecasting stock prices that the Discounted Dividends model. 17. The present value of the terminal (continuation) value cash flow that begins in 9 years is $10,000,000 assuming a cost of equity equal to 14%. The year 9 free cash flow (beginning of the growing perpetuity) is $3,137,860. What is the growth rate required for the continuation value term? 1% b. C. d. 2% 3% 4%
