Chapter 3: Discounted Cash Flow Analysis 1) A DCF analysis is premised on the principle that the value of a company can be derived from the present value of which of the following? A. Revenues B. Gross profits C. Free cash flow D. Net working capital 2) When there are limited (or no) pure play peer companies, which valuation method should be used? A. Comparable companies analysis B. Precedent transaction analysis C. Vertical analysis D. Discounted cash flow analysis 3) In a DCF analysis, what is used to capture the remaining value of the target beyond the projection period? A. Intrinsic value B. Terminal Value C. WACC D. Enterprise Value 4) In which calculation is the exit multiple method or the perpetuity growth method used? A. Present value B. Terminal value C. WACC D. FCF

5) In a DCF analysis, the targets projected FCF and terminal value are discounted to the present and summed to calculate the targets: A. Enterprise value B. Market cap C. Equity value D. Current value 7) Which expense reduces the life of an intangible asset? A. Depreciation B. Accelerated Depreciation C. Amortization D. Capex 8) Capex is expensed over its useful life through which of the following? A. Depreciation B. Amortization ($ in millions) Financial Summary EBIT $400 Capital Expenditures 100.0 Interest Expense 150.0 D&A 200.0 Increase in net working capital 40.0 Tax rate 40%

C. EBIAT D. Goodwill 9) Which of the following is considered a use of cash? A. Amortization B. Depreciation C. Decrease in net working capital D. Increase in net working capital 10) How does a decrease networking capital affect FCF? A. Overstates FCF B. Does not affect FCF C. Understates FCF D. It depends 12) What is inventory divided by to obtain DIH? A. COGS ($ in millions) Details A/R $10.0 A/P 30.0 Sales 500.0

B. Sales C. Accounts Receivable D. Gross Profit 14) When there is no debt in the capital structure, what is WAAC equal to? A. Cost of debt B. Debt-to-total capitalization ratio C. Equity-to-total capitalization ratio D. Cost of equity 15) What happens to WAAC as the proportion of debt in a capital structure increases? A. It stays the same B. It decreases C. It increases D. It depends 16) What is used to calculate the expected return on a companys equity? ($ in millions) Details Long term debt $100.0 Total equity 3600.0

A. FCF B. CAPM C. DCM D. EEM

22) Calculate the discount factor for $1.00 received at the end of one year, assuming a 12% discount rate. A. .80 B. .95 C. .87 D. .89 24) Which variable generally represents the majority of a DCF valuation? A. CAPM B. Beta Details Terminal Year EBITDA 1,200 Industry growth rate 2% Exit multiple 7x WAAC 17% Details FCF $200.0 WAAC 8%

C. WAAC D. Terminal value 25) When determining a terminal value for a cyclical company, the banker must make sure that: A. Earnings are normalized B. Earnings are at a cyclical high C. Earnings are at a cyclical low D. The perpetuity growth method is used 26) If a DCF is constructed on the basis of EBIT or EBITDA, what must be driven as a percentage of sales? A. COGS B. SG&A C. Net working capital D. D&A 27) All of the following assets can be amortized EXCEPT: A. Copyrights B. Patents C. Goodwill D. PP&E 28) Which of the following is a true statement about capital expenditures? A. They represent actual cash outflows B. They represent theoretical cash outflows C. They represent intangible assets D. They are expenses