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Financial Planning and Forecasting2

Financial Planning and Forecasting2 - E 2 $1.249 share...

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Old Exam Questions - Financial Planning and Forecasting Page 7 of 35 Pages E. $1.249 / share 2. Assume that you observe the following percentage returns (in decimal form) for the Market and for Firm A. Use regression analysis to determine how the returns for Firm A are related to the returns for the Market (determine the intercept and slope, setting the Market as the independent variable and Firm A as the dependent variable), then calculate the best guess for what the returns on Firm A will be in 2003, if the return on the market in 2003 is 8 percent (0.08). Note: You must use your financial calculator. You cannot calculate the slope using rise/run. Year Market Firm A 2002 - .10 -.25 2001 .15 .00 2000 .20 .30 1999 .30 .64 1998 .28 .40 A. 4.45% B. 5.05% C. 5.25% D. 4.65% E. 4.85% YOU ARE GIVEN THE FOLLOWING INFORMATION FOR PROBLEMS 3 - 4: Income Statement Year 2 Year 3 First Pass Year 3 Second Pass Sales $1,200.00 $1,800.00 $1,800.00 Operating Costs -$1,020.00 Depreciation -$55.00 EBIT $125.00 Interest -$25.00 EBT $100.00 Taxes (40%) -$40.00 Net Income $60.00 Dividends $40.00 Assets Year 2 Year 3 First Pass Year 3 Second Pass Cash $15.00 Accounts Receivable $200.00 Inventories $250.00
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Old Exam Questions - Financial Planning and Forecasting Page 8 of 35 Pages Current Assets $465.00 Gross Plant & Equipment $1,100.00 Less: Depreciation -$555.00 Net Plant & Equipment $545.00 Total $1,010.00 Liabilities & Equity Year 2 Year 3 First Pass Year 3 Second Pass Accounts Payable $120.00 Notes Payable $50.00 Accruals $80.00 Current Liabilities $250.00 Long-Term Debt $210.00 Common Stock $382.00 Retained Earnings $168.00 Total $1,010.00 AFN N/A You are also given the following assumptions: 1. Sales will increase by half (50 percent) to $1,800. 2. Cost of goods sold will decrease to 80 percent of sales. 3. Accounts receivable, inventories, accounts payable, and accruals can all be expressed as a percentage of sales. 4. The firm expects to increase its minimum cash balance to $50 at the beginning of Year 3. 5. Current gross fixed assets are being depreciated on a straight-line basis over a 20 year period ($1,100/20) = $55 per year. 6. The firm intends to add an additional $1,000 of gross fixed assets at the beginning of Year 3. These additional assets will be depreciated on a straight- line basis over a 10-year period.
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