1.What is the MAIN difference between Cost of Goods Sold (COGS) and Operating Expenses (OpEx) on a company's Income Statement?
A.COGS corresponds to expenses that can be *directly* linked to individual products or services sold, whereas with OpEx there is not a direct relationship.
B.COGS is almost always projected as a percentage of revenue, but OpEx is rarely projected that way since it can't be linked to individual units sold.
C.They're both expenses, but OpEx is almost always significantly bigger than COGS.
D.COGS can reflect only cash expenses, whereas OpEx may include both expenses paid out in cash in the current period, as well as expenses that are owed and which will be paid out in cash in the future.
2.Which of the following has an incorrect grouping?
A.Current Ratio, Quick Ratio, Cash Ratio
B.Inventory Turnover, Payables Turnover, Total Asset Turnover, Times Interest Earned Ratio
C.Gross Profit Margin, Net Profit Margin, ROA, ROE
D.Debt Ratio, Debt/Capital Ratio, Long-Term Debt/Shareholders' Equity Ratio
3.What is the MAIN difference between Levered Free Cash Flow and Unlevered Free Cash Flow in a DCF analysis?
A.Unlike Levered FCF, Unlevered FCF is pre-tax because the formula begins with Operating Income (or EBIT).
B.Unlike Unlevered FCF, with Levered FCF you do not add back Depreciation or other non-cash charges because the formula starts with Net Income.
C.In a DCF, using Levered FCF results in Enterprise Value while using Unlevered FCF for the calculations results in Equity Value.
D.Levered FCF includes the effects of cash and debt, while Unlevered FCF excludes the effects of financing decisions.
4.A company has the following information:
- 2015 Retained Earnings - $12.0 billion
- 2016 Net Income - $3.5 billion
- 2016 CAPEX - $200.0 million
- 2016 Preferred Dividends - $100.0 million
- 2016 Cash Dividends - $400.0 million
What is the retained earnings balance at the end of 2016?
5.If the Tripoli Company has a current ratio of 2:1, which of the following activities would increase the company's current ratio?
A.Collecting accounts receivable and placing the funds in a checking account.
B.Cash payment reducing accounts payable.
C.Paying long-term debt.
D.Declaring a cash dividend payable next period.
6.Google has an equity book value of $87B per the company's latest 10-Q. Google shares trade at $535. Google has 678MM shares outstanding. Google also has $59B in cash, $5B in debt.
A.Google's equity market value (market cap) is approximately $401B.
B.Google's enterprise value is approximately $309B.
C.Google's enterprise value is approximately $417B.
D.Google's equity market value (market cap) is approximately $465B.
7.Which of the following is correct about debt related ratios?
A.A firm with a TIE ratio of 19x compares favorably to an industry average of 9.7x.
B.A firm with a debt to equity ratio of 30% compares favorably to an industry average of 65%.
C.A firm with a debt to equity ratio of 30% compares favorably to an industry average of 65% and a firm with a TIE ratio of 19x compares favorably to an industry average of 9.7x.
D.More debt typically implies less risk.
E.More debt typically implies less risk and a firm with a TIE ratio of 19x compares favorably to an industry average of 9.7x.
F.A firm with a debt to equity ratio of 55% compares favorably to an industry average of 35%.
8.An analyst has compiled the following 2016 information about Steller Corp. (in millions).
- Income Statement Data:
- Net sales = $600, COGS = $300, SG&A expense = $50, Interest expense = $10, Income taxes = $56 and Net income = $184
- Balance Sheet Data:
- Beginning and ending total liabilities and equity = $1,125 and $1,275, respectively.
Based on the above data, Steller's total asset turnover is:
C.Cannot be determined
9.A company has Terminal Year Unlevered Free Cash Flow of $100. You expect this cash flow to grow at 2% in perpetuity, and the company's WACC is 14%. Using the Perpetual Growth Method, what is this company's Terminal Value?
10.You're linking Inventory to Cost of Goods Sold (COGS) in order to project it over a 5-year period. Over the past 3 historical years, Inventory as a percentage of COGS was 10% on average. What does that mean?
A.You can't say anything definitive without more detailed information.
B.10% is far too low, so you should project Inventory in a different way and not link it to COGS.
C.It means that your calculations are off, because Inventory on the Balance Sheet should always exceed COGS.
D.It means that, on average, the company goes through its Inventory balance and sells off all its Inventory 10 times per year.
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