1.Which of the following has the most favorable cash conversion cycle?

A.DSO = 28, DOH = 32, DPO = 38

B.DSO = 30, DOH = 45, DPO = 10

C.DSO = 64, DOH = 48, DPO = 24

D.DSO = 45, DOH = 22, DPO = 12

2.Which of the following produces a correct observation?

A.An increase in COGS which exceeds that of revenue will result in an increased gross profit margin.

B.An increase in interest bearing debt will result in an increase in the debt/equity ratio if equity remains the same.

C.An increase in the asset turnover ratio will cause an increase in the Days Sales Outstanding Ratio.

D.An increase in current assets equal to an increase in current liabilities will cause the current ratio to remain the same.

3.Which of the following is incorrect?

A.The DCF model assumes a constant WACC throughout.

B.In an unlevered DCF, the WACC is the appropriate discount rate because we are discounting free cash flows that belong to all providers of capital.

C.An implied share price which is above the current share price indicates that the shares are selling at a discount.

D.The terminal value has minimal impact in the calculation of enterprise value.

4.A firm's days of sales outstanding are 23.4, days of inventory on hand are 45.9, and the number of days of payables are 34.7.When credit sales are made by the firm, the buyer agrees to pay balances owed in 30 days.

What is the firm's cash conversion cycle?

A.34.6 days

B.41.2 days

C.104.0 days

D.69.3 days

5.Company X's current assets increased by $40 million from 2015 to 2016, while the company's current liabilities increased by $25 million over the same period. The CASH impact of the change in working capital was:

A.$15.0 million increase

B.$15.0 million decrease

C.$40.0 million increase

D.$25.0 million increase

6.Which of the following produces an incorrect observation?

A.The tax shield for NOPAT calculations is subtracted from the total tax expense to determine the tax on operating results.

B.A higher NOPAT, will typically result in a higher the return on invested capital.

C.The operating tax is subtracted from operating income to determine NOPAT.

D.The tax shield for NOPAT calculations is based on non-operating items from the income statement.

E.All of the answers are correct.

7.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. 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%.

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. 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.

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

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

8.Which of the following is typically not associated with a firm that is positioned to expand its market share?

A.Projected increases in selling, general & administrative expenses on the income statement.

B.Cash outflows for CAPEX as shown on the statement of cash flows.

C.Projected increased cash outflow for prepayment of debt principal on the financing section of the statement of cash flows and the accompanying reduction of debt on the balance sheet.

D.Increases in gross property, plant & equipment on the balance sheet.