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Valuation Practice Quiz: FINC 6290 OA F1 2014 Financial Strategy

Valuation Practice Quiz

Due Sep 28 at 5:30pm

Points 14

Questions 14

Available after Aug 26 at 9pm

Time Limit 120 Minutes

Allowed Attempts 3

Instructions
A practice quiz on valuation concepts. Extra Credit. Three attempts. You may want to finish at least one attempt before the first exam. Time Limit 2 hours.

Attempt History

Attempt

Time

Score

KEPT

Attempt 2

76 minutes

8 out of 14

LATEST

Attempt 3

63 minutes

4 out of 14

Attempt 2

76 minutes

8 out of 14

Attempt 1

67 minutes

5 out of 14

Score for this attempt: 4 out of 14

Submitted Sep 28 at 2:24pm
This attempt took 63 minutes.

0 / 1 pts

Question 1

Palm & Sun's (PS) free cash flows are expected to be $200 million next year and $315 million two years from now. After that, free cash
flows are expected to grow at a constant rate of 2% per year forever. P&Ss WACC is 11%, its cost of equity is 14% and its cost of debt is
9.5%. They have $321 million of debt and $76 million in cash on their balance sheet. Use the discounted cash flow model to find P&Ss
current enterprise value (rounded to the nearest million dollars).

You Answered

Correct Answer

3088.0000

3329 margin of error +/- 4

1 / 1 pts

Question 2

Swamp & Sand Industries has the following data. At a discount rate of 12%, calculate its Discounted Cash Flow (DCF).
20X1

Correct!

Correct Answer

20X2

20X3

FCF

557

557

557

Depreciation

42

42

42

1337.8200
1337 margin of error +/- 3

DCF is Discounted Cash Flow. Note we use FCF. At 12% 3 yrs, the PVA1 = 2.4 So FCF *2.4 = DCF. To find the PVA1 (the
present value of a $1 annuity): 1=P/YR 3=N 12=I/YR 1=PMT 0=FV PV=2.4

Question 3

0 / 1 pts

Swamp & Sand Industries has the following data. The discount rate is 12%. Terminal value is 3 times FCF. Cash and debt are constant.
Calculate its Equity Value.

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Valuation Practice Quiz: FINC 6290 OA F1 2014 Financial Strategy

20X1

20X2

20X3

Free Cash Flow

1543

1543

1543

Cash

107

107

107

Debt

277

277

277

You Answered

Correct Answer

1675.5000

6824 margin of error +/- 2

Free Cash Flow and terminal value are discounted at 12% to get enterprise value. Enterprise Value -Debt -Cash =Equity
Value Note: To conform with the class notes, we do subtract cash.

0 / 1 pts

Question 4

Given the following data from Swamp & Sand Industries, calculate the FCF. The tax rate is 30%.

Sales

11659

Cost of Sales

4376

SGA

1180

Depreciation

1150

Interest Expense

343

NWC

546

CapEx

1035

Dividends

185

Note SGA does not include depreciation.

You Answered

Correct Answer

2611.0000

4128 margin of error +/- 5

FCF = EBIT -Taxes +Dep -/+Chg NMC -CapEx

Question 5

0 / 1 pts

Calculate the terminal value of the tax shield given the following information. Assume we are calculating it for the next year. The tax rate is
30%. Debt will be $1233 million. Assume debt grows at the same annual rate as the firm which is 2 %. The cost of debt is 7% while the
cost of equity is 12%.

You Answered

Correct Answer

384.8400

1761 margin of error +/- 4

Question 6

0 / 1 pts

Swamp & Sand Industries has the following data. The discount rate is 12%. Terminal value is 3 times FCF. Cash and debt are constant.

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Valuation Practice Quiz: FINC 6290 OA F1 2014 Financial Strategy

Calculate its Enterprise Value.
20X1

20X2

20X3

Free Cash Flow

1993

1993

1993

Cash

138

138

138

Debt

312

312

312

You Answered

Correct Answer

6394.1500

9034 margin of error +/- 5

Enterprise Value is the discounted value of FCF and Terminal Value. FCF is a constant annuity in this problem. TV a lump
sum. The present value of $1 annuity at 12% 3 yrs, the PVA1, = 2.4 The present value of $1at 12% 3 yrs, the
PV1(12%,3yr) = .71 So FCF *2.4 + TV*.71 = Enterprise Value. To find the PVA1 (the present value of a $1 annuity):
1=P/YR 3=N 12=I/YR 1=PMT 0=FV PV=2.4 To find the discount factor: 1=P/YR 3=N 12=I/YR 0=PMT 1=FV PV=.71

0 / 1 pts

Question 7

At the end of 10 years, Grokster Investments plans to sell its interest in One City Tower, an office building in Miami, FL. In year 10 the
building is expected to generate an annual cash flow of $169 million that is expected to grow at an annual rate 3% forever. The discount
rate for projects such as this is 9%.
Calculate the terminal value at the end of the 10th year. Do not discount it to the present.

You Answered

Correct Answer

29011666.6700

2901 margin of error +/- 5

TV = CF * (1+g)/(k-g)

0 / 1 pts

Question 8

For Palm and Sun Industries, calculate capex given the following data:

You Answered

Correct Answer

Beg PPE

148

End PPE

222

Depr

41

115.0000

33 margin of error +/- 2

Capex = End PPE -(Beg PPE+Dep)

Question 9

1 / 1 pts

Given the following data from Swamp & Sand Industries, calculate the EBIT. The tax rate is 30%.

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Valuation Practice Quiz: FINC 6290 OA F1 2014 Financial Strategy

Sales

11481

Cost of Sales

4322

SGA

1185

Depreciation

1311

Interest Expense

792

NWC

660

CapEx

1051

Dividends

116

Note SGA does not include depreciation.

Correct!

Correct Answer

4663.0000
4663 margin of error +/- 2

Revenue -Cost of Revenue -SGA -Depreciation =EBIT Do not subtract interest or taxes.

0 / 1 pts

Question 10

Swamp & Sand Industries has the following data. Calculate its Net Working Capital (NWC) adjustment for cash flow in 20X2.
20X1

20X2

20X3

Cash

50

80

60

Receivables

213

211

161

Inventories

234

171

197

Payables

119

102

178

Debt

100

150

200

You Answered

Correct Answer

18.0000

-48 margin of error +/- 2

Receivables +Inventories -Payables = NWC 2012 NWC - 2011 NWC = Chg NWC

1 / 1 pts

Question 11

Given the following data from Swamp & Sand Industries, calculate the net income (NI). The tax rate is 30%.

Sales

11237

Cost of Sales

4417

SGA

1208

Depreciation

1035

Interest Expense

743

NWC

546

CapEx

1131

Dividends

118

Note SGA does not include depreciation.

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Valuation Practice Quiz: FINC 6290 OA F1 2014 Financial Strategy

Correct!

Correct Answer

2683.8000
2684 margin of error +/- 3

Revenue -Cost of Revenue - SGA - Depreciation - Interest Expense - Taxes = Net Income

0 / 1 pts

Question 12

An analyst is valuing Palm and Sun Industries for a possible acquisition. The buyer wants cash flows evaluated for 20 years a terminal
value $50 M. Ignore taxes.
Annual cash flow from continuing operations $ 1086 M.
Annual cash flow from product line expansion $250 M.
Annual cash flow from tax savings $ 47 M.

Use these discount rates.

Cost of Equity 15%
Cost of Debt 6%

Calculate the APV.

You Answered

Correct Answer

8735.0000

8906 margin of error +/- 5

PVA1 is the present value of a $1 annuity.

0 / 1 pts

Question 13

Swamp & Sand Industries has the following data. The interest rate is 5%, and the unlevered cost of equity is 12%. There are no terminal
values, the firm sinks into bankruptcy.
Calculate its Adjusted Present Value (APV).

You Answered

Correct Answer

20X1

20X2

FCF

186

186

20X3
186

Interest Expense

26

26

26

475.0600

517 margin of error +/- 2

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Valuation Practice Quiz: FINC 6290 OA F1 2014 Financial Strategy

DCF is Discounted Cash Flow. Note we use FCF. At 12% 3 yrs, the PVA1 = 2.4 So FCF *2.4 = DCF. To find the PVA1 (the
present value of a $1 annuity): 1=P/YR 3=N 12=I/YR 1=PMT 0=FV PV=2.4

1 / 1 pts

Question 14

For Palm and Sun Industries, calculate depreciation given the following data:

Correct!

Correct Answer

Beg PPE

160

End PPE

239

Cap Ex

113

34.0000
34 margin of error +/- 2

Net PPE = PPE - A/D CapEx = 2012 Net PPE - 2011 Net PPE + 2012 Dep Note: the changes in A/D may not make sense.
That is due to programming glitch in the system.

Quiz Score: 4 out of 14

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