Multiple-Choice Questions:

2.1 Free Cash Flow to Firm is calculated in the following way:

a. NOPAT - Taxes + Depreciation and Amortization - Capital Expenditures + Increase in Working Capital

b. EBIT - Taxes + Depreciation and Amortization - Capital Expenditures - Increase in Working Capital

c. NOPAT - Depreciation and Amortization + Capital Expenditures + Increase in Working Capital

d. Net Income + Depreciation and Amortization + Capital Expenditures - Increase in Working Capital

2.2 Sustainable growth rate (mark all the correct answers)

a. is the rate at which a firm can grow while keeping its profitability and financial policies unchanged.

b. can be calculated in the following way: ROE x (1- dividend payout ratio)

c. can be calculated in the following way: ROE x (1- dividend yield)

d. can be calculated in the following way: Net margin x (1- dividend payout ratio)

2.3 To decompose ROE using three-step traditional Dupont formula, one needs to have the following financial information:

a. Net income

b. EBIT

c. Sales

d. Total assets

e. Shareholders' Equity

f. Liabilities

2.4 Top Trades Co has been trading for a number of years and is currently going through a period of expansion. An extract from the statement of cash flows for the year ended 31 December 20X7 for Top Trades Co is presented as follows (numbers in thousands of Euros):

Net cash from operating activities 995

Net cash used in investing activities (540)

Net cash used in financing activities (200)

Net increase in cash and cash equivalents 255

Cash and cash equivalents at the beginning of the period. 200

Cash and cash equivalents at the end of the period 455

Select one: a. Net cash generated from financing activities has been used to fund the additions to non-current assets

b.Net cash generated from operating activities has been used to fund the additions to non-current assets

c. The company has good working capital management

d. Existing non-current assets have been sold to cover the cost of the additions to non-current assets