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FIN 534 Week 8 Quiz 7 (Str Course)
Last year Godinho Corp. had $250 million of sales, and it had $75 million of
fixed assets that were being operated at 80% of capacity. In millions, how large
could sales have been if the company had operated at full capacity?
Question 2
Which of the following is NOT a key element in strategic planning as it is
described in the text?
Question 3
Spontaneous funds are generally defined as follows:
Question 4
Which of the following statements is CORRECT?
Question 5
Which of the following statements is CORRECT?
Question 6
Which of the following statements is CORRECT?
Question 7
The capital intensity ratio is generally defined as follows:
Question 8
A company expects sales to increase during the coming year, and it is using the
AFN equation to forecast the additional capital that it must raise. Which of the
following conditions would cause the AFN to increase?
Question 9
Which of the following statements is CORRECT?
Question 10
Which of the following is NOT one of the steps taken in the financial planning
process?
Question 11
Which of the following statements is CORRECT?
Question 12
Which of the following assumptions is embodied in the AFN equation?
Question 13
The term “additional funds needed (AFN)” is generally defined as follows:
Question 14
Which of the following statements is CORRECT?
Question 15
Last year Handorf-Zhu Inc. had $850 million of sales, and it had $425 million of
fixed assets that were used at only 60% of capacity. What is the maximum sales
growth rate the company could achieve before it had to increase its fixed
assets?
Question 16
Which of the following statements is NOT CORRECT?
Question 17
Based on the corporate valuation model, Hunsader’s value of operations is $300
million. The balance sheet shows $20 million of short-term investments that are
unrelated to operations, $50 million of accounts payable, $90 million of notes
payable, $30 million of long-term debt, $40 million of preferred stock, and $100

3. million of common equity. The company has 10 million shares of stock
outstanding. What is the best estimate of the stock’s price per share?
Question 18
Which of the following is NOT normally regarded as being a good reason to
establish an ESOP?
Question 19
Zhdanov Inc. forecasts that its free cash flow in the coming year, i.e., at t =
1, will be -$10 million, but its FCF at t = 2 will be $20 million. After Year 2,
FCF is expected to grow at a constant rate of 4% forever. If the weighted
average cost of capital is 14%, what is the firm’s value of operations, in
millions?
Question 20
Leak Inc. forecasts the free cash flows (in millions) shown below. If the
weighted average cost of capital is 11% and FCF is expected to grow at a rate of
5% after Year 2, what is the Year 0 value of operations, in millions? Assume
that the ROIC is expected to remain constant in Year 2 and beyond (and do not
make any half-year adjustments).
Year: 1 2
Free cash flow: -$50 $100
Question 21
Suppose Leonard, Nixon, & Shull Corporation’s projected free cash flow for next
year is $100,000, and FCF is expected to grow at a constant rate of 6%. If the
company’s weighted average cost of capital is 11%, what is the value of its
operations?
Question 22
A company forecasts the free cash flows (in millions) shown below. The weighted
average cost of capital is 13%, and the FCFs are expected to continue growing at
a 5% rate after Year 3. Assuming that the ROIC is expected to remain constant in
Year 3 and beyond, what is the Year 0 value of operations, in millions?
Year: 1 2 3
Free cash flo -$15 $10 $40
Question 23
Suppose Yon Sun Corporation’s free cash flow during the just-ended year (t = 0)
was $100 million, and FCF is expected to grow at a constant rate of 5% in the
future. If the weighted average cost of capital is 15%, what is the firm’s value
of operations, in millions?
Question 24
Based on the corporate valuation model, Bernile Inc.’s value of operations is
$750 million. Its balance sheet shows $50 million of short-term investments that
are unrelated to operations, $100 million of accounts payable, $100 million of
notes payable, $200 million of long-term debt, $40 million of common stock (par
plus paid-in-capital), and $160 million of retained earnings. What is the best
estimate for the firm’s value of equity, in millions?
Question 25
Simonyan Inc. forecasts a free cash flow of $40 million in Year 3, i.e., at t =
3, and it expects FCF to grow at a constant rate of 5% thereafter. If the
weighted average cost of capital is 10% and the cost of equity is 15%, what is
the horizon value, in millions at t = 3?
Question 26
Akyol Corporation is undergoing a restructuring, and its free cash flows are
expected to be unstable during the next few years. However, FCF is expected to
be $50 million in Year 5, i.e., FCF at t = 5 equals $50 million, and the FCF
growth rate is expected to be constant at 6% beyond that point. If the weighted
average cost of capital is 12%, what is the horizon value (in millions) at t =
5?
Question 27

4. Which of the following does NOT always increase a company’s market value?
Question 28
Based on the corporate valuation model, the value of a company’s operations is
$1,200 million. The company’s balance sheet shows $80 million in accounts
receivable, $60 million in inventory, and $100 million in short-term investments
that are unrelated to operations. The balance sheet also shows $90 million in
accounts payable, $120 million in notes payable, $300 million in long-term debt,
$50 million in preferred stock, $180 million in retained earnings, and $800
million in total common equity. If the company has 30 million shares of stock
outstanding, what is the best estimate of the stock’s price per share?
Question 29
Which of the following is NOT normally regarded as being a barrier to hostile
takeovers?
Question 30
Based on the corporate valuation model, the value of a company’s operations is
$900 million. Its balance sheet shows $70 million in accounts receivable, $50
million in inventory, $30 million in short-term investments that are unrelated
to operations, $20 million in accounts payable, $110 million in notes payable,
$90 million in long-term debt, $20 million in preferred stock, $140 million in
retained earnings, and $280 million in total common equity. If the company has
25 million shares of stock outstanding, what is the best estimate of the stock’s
price per share?