Can you answer the last three Q 41, Q 42, Q 43 the information is attached

Bus 400A Test 2 Dr. Wei Feng Name: ____________________ Date: ____________________ Question 1-40 TRUE / FALSE (1.5 * 20 = 30) 1. Short-term financial planning is critical during the survival stage because operations not yet turning a profit and the associated cash burn often lead to a venture's inability to pay its maturing liabilities. 2. A venture's operating schedules typically include a: sales schedule, purchases schedule, and wages and commissions schedule. 3. Preparing monthly cash budgets for a full year allows the entrepreneur to determine whether there will be a cash need, the maximum size of the cash need, and whether the need can be repaid during the year. 4. The risk-free interest rate is the interest rate on debt that is virtually free of inflation risk. 5. \"Default-risk\" is the risk that a borrower will not pay the interest and/or the principal on a loan. 6. Subordinated debt is secured by a venture's assets, while senior debt has an inferior claim to a venture's assets. 7. The weighted average of a set of possible outcomes or scenarios is known as expected values. 8. The sustainable sales growth rate is equal to ROA times the retention ratio. 9. \"Additional funds needed\" (AFN) is the gap remaining between the financial capital needed and that funded by spontaneously generated funds and retained earnings. 10. An increase in accounts receivable will require additional financing unless the increase is offset by an equal decrease in another asset account. 11. Surplus cash is the cash remaining after required cash, all operating expenses, and reinvestments are made. 12. Required cash is the amount of cash required to operate a venture through its day-to-day business. 13. \"Net operating working capital\" is current assets other than surplus cash less non-interest-bearing current liabilities. 1 14. The wider the capitalization or \"cap\" rate (i.e., the discount rate minus the growth rate in the terminal period), the higher the terminal value. 15. The value of the venture's equity is equal to the value the financing contributed in the first venture capital round. 16. Failure to account for any additional rounds of financing and its accompanying dilution in order to meet projected earnings will result in the investor's not receiving an adequate number of shares to ensure the required percent ownership at the time of exit. 17. Staged financing is financing provided in sequences of rounds rather than all at one time. 18. Harvesting is the process of exiting the privately held business venture to unlock the owners' investment value. 19. One method of harvesting a successful venture is through systematic distribution of assets directly to lenders. 20. \"Cash flow insolvency\" exists when a venture's cash flow is insufficient to meet its current contractual debt obligations. Multiple Choices (2 * 20 = 40) 21. Which one of the following \"measures\" the average days of sales committed to the extension of trade credit? a. sale-to-cash conversion period b. inventory-to-sale conversion period c. purchase-to-payment conversion period d. cash conversion cycle period 22. Determine the cash conversion cycle based on the following information: inventory-to-sale conversion period = 112.9 days; sale-to-cash conversion period = 57.1 days; and purchase-to-payment conversion period = 76.8 days. a. 93.2 days b. 132.6 days c. 170.0 days d. 246.8 days e. 365.0 days 23. Which one of the following would increase a firm's need for additional funds? a. an increasing profit margin b. a decreasing expected sales growth rate c. an increase in accruals d. an increasing dividend payout rate e. a decrease in assets 2 24. When projecting financial statements, one would first , and then proceed to a. project of the balance sheet, forecast sales. b. forecast sales, project the income statement c. forecast sales, project the balance sheet d. forecast sales, project the statement of cash flows : 25. The additional premium added to the real interest rate by lenders to compensate them for a debt instrument which cannot be converted to cash quickly at its existing value is called? a. inflation premium b. default risk premium c. liquidity premium d. maturity premium e. investment risk premium 26. The added interest rate charged due to the inherent increased risk in long-term debt is called? a. inflation premium b. default risk premium c. liquidity premium d. maturity premium e. investment risk premium 27. A venture has raised $4,000 of debt and $6,000 of equity to finance its firm. Its cost of borrowing is 6%, its tax rate is 40%, and its cost of equity capital is 8%. What is the venture's weighted average cost of capital? a. 8.0% b. 7.2% c. 7.0% d. 6.2% e. 6.0% 28. The cost of equity for a firm is 20%. If the real interest rate is 5%, the inflation premium is 3%, and the market risk premium is 2%, what is the investment risk premium for the firm? a. 10% b. 12% c. 13% d. 15% 29. Use the SML model to calculate the cost of equity for a firm based on the following information: the firm's beta is 1.5; the risk free rate is 5%; the market risk premium is 2%. a. 4.5% b. 8.0% c. 9.5% d. 10.5% 30. Lola is in the process of forecasting the sales growth rate for an early-stage venture specializing in the production of durable running shoes. Lola predicts a .2 probability of an 80% growth in sales, a .3 probability of a 60% growth in sales, a .4 probability of a 40% growth in sales, and a .1 probability of a 10% decrease in sales. What is the expected sales growth rate of the venture? 3 a. b. c. d. 47% 49% 51% 53% 31. Determine a venture's sustainable growth rate based on the following information: sales = $1,000,000; net income = $150,000; common equity at the end of last year = $520,000; and the dividend payout percentage = 20%. a. 10% b. 16% c. 20% d. 24% e. 30% 32. The value today of all future cash flows discounted to the present at the investor's required rate of return is called? a. going-concern value b. present value c. terminal value d. reversion value e. net present value 33. Your firm has been in business for two years. In its first year, the firm ended with $227,000 of current assets, long-term assets of $143,000, $70,000 in surplus cash, current liabilities of $52,000, and long-term assets of $68,000. At the end of the second year, current assets were $279,000, long-term assets of $195,000, surplus cash of $90,000, current liabilities of $62,000, and long-term assets of $78,000. What is your firm's change in net operating working capital? a. $22,000 b. $62,000 c. $42,000 d. $244,000 e. $32,000 34. Which one of the following equity valuation methods records surplus cash on the balance sheet but assumes that the surplus cash is paid out over time for valuation purposes? a. maximum dividend method b. pseudo dividend method c. sustainable growth method d. return on equity method 35. When estimating the terminal value of a cash flow perpetuity, which one of the following is not a component? a. the next period's cash flow b. a constant discount rate c. a constant growth rate d. the payback period 4 36. Estimate a venture's terminal value based on the following information: current year's net income = $20,000; next year's expected cash flow = $26,000; constant future growth rate = 7%; and venture investors' required rate of return = 20%. a. $156,846 b. $285,714 c. $200,000 d. $150,000 e. $428,571 37. Suppose your venture's expected mean cash flows are $(85,000) initially, followed by expected mean cash flows at the end of the first, second, and third years of $40,000, $40,000, and $35,000. What is the internal rate of return? a. 13.9% b. 14.7% c. 16.2% d. 17.2% e. 19.2% 38. A P/E multiple refers to: a. price/expectations multiple b. price/earnings multiple c. profit/EBIT multiple d. profit/earnings multiple e. price/EBITDA multiple 39. Determine the future value of a target venture which has net income expected to be $40,000 at the end of four years from now. A comparable firm currently has a stock price of $20.00 per shares; 100,000 shares outstanding; and net income of $50,000. a. $1.0 million b. $1.4 million c. $1.6 million d. $2.0 million 40. Which of the following financing rounds dilutes the ownership founders? a. first-round b. second-round c. incentive ownership round d. a and b e. a, b, and c Question 41-43 (10 * 3 = 30) Q41. Your firm recorded sales for the most recent year of $10 million generated from an asset base of $7 million, producing a $500,000 net income. Sales are projected to grow at 20%, causing spontaneous liabilities to increase by $200,000. In the most recent year, $200,000 was paid out as dividends, and the current payout ratio will continue in the upcoming years. What is your firm's AFN? 5 Q42. A venture is expected to have an exit value of $10,000,000 five years from now. If venture investors invest $1,000,000 now, and expect a 20% compounded rate of return on their investment, what portion of the exit value would they need? Q43. Answer each of the five questions. 6