Quiz 6 Applied corporate finance PDF

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Applied Corporate Finance – FINN 400 (01) Quiz # 1 - Spring 2017 Total Points: 10

Name: _______________________ ID #: ________________

SELECT THE SINGLE BEST ANSWER. USE A CIRCLE TO INDICATE YOUR CHOICE. Questions in the quiz are based on Krispy Kreme Doughnuts (KKD), Inc. case study and assigned reading, “Z- Factor – Rescue by the Numbers”. 1.

Which of the following statements is true? I. One of the key reasons for problems at KKD was excessive use of debt. II. Roughly 60% of KKD sales were derived from its signature product, the glazed doughnut. a. I is true b. II is true c. both are true d. both are false

2.

Krispy Kreme generated the highest proportion of its revenue from: a. Off premises sales b. Sale of mixes and doughnut making equipment c. On premises sales d. Franchise royalties and fees e. Online sales

3.

Which of the following statements is true? I. The biggest problem for Krispy Kreme may be that the company grew too quickly and diluted it cult status by selling doughnuts in too many outlets.

II. a. c. 4.

According to some analysts KKD management had lost focus on operations as too many units were opened in poor locations. I is true b. II is true both are true d. both are false

Which of the following statements is not true? a. The company initially claimed that the recent low-carbohydrate diet trend in US has caused the Krispy’s earnings to decline. b. Krispy Kreme amortized the purchase cost of its seven Michigan franchise stores over the useful life of assets. c. The company declined any wrongdoing initially and claimed that it accounted for its franchise acquisitions in accordance with generally accepted accounting principles (GAAP). d.

all of the above are not true

5.

Which of the following statements is true? a. By 2005 most analysts covering KKD were making buy recommendations to investors. b. KKD’s largest competitor in the U. S. was Dunkin’ Donuts for which the majority of sales came from coffee. c. KKD IPO in 2000 was one of the largest and successful public offerings. d. all of the above are true e. only b and c above are true

6.

Which of the following statements is not correct? The statements refer to Z-Factor Rescue by the Numbers article: a. Z-score is an overall index of corporate financial health. b. According to the model, financially strong companies have Z-score between 1.81 and 2.99 c. Of the five financial ratios in the Z-score model, four had total assets in the denominator. d. Z-score model’s prediction accuracy improves closer to the event e. more than one statement is not correct

7.

Which one of the following ratios is not part of the Z-score model? a. EBIT/total assets b. total debt/total assets c. net working capital/total assets d. retained earnings/book value of total debt e. accumulated retained earnings/total assets

8.

Which of the following statements is true? a. The Z-score model was originally developed by Professor Altman as a company turnaround tool. b. The Z-score model is based on a multivariate statistical method called Multiple Regression Analysis (MRA). c. The Z-score model is also known as the brokers tool to help investors in their investment decisions d. The Z-score model (referred to in the reading) was developed using 33 healthy and 33 bankrupt companies d. only b and c above are true e. only c and d above are true

9.

Which of the following statements regarding KKD is not true? a. KKD stock price plummeted more than 80% from its peak price in August 2003 because of

aggressive accounting treatment revelation about franchise rights reacquisitions made by KKD and reduction in earnings guidance b. c. d. e. 10.

Off-premises sales were to grocery stores, convenience stores, and a small percentage were sold as private label. As Krispy Kreme’s fundamentals and accounting treatment became known during the second half of 2004, analyst covering the stock remained optimistic in their recommendations and outlook of the stock. All franchisees were required to buy mixes and equipment from Krispy Kreme which the firm manufactured and distributed Two of the above are not true.

What was the ROE of KKD based on the following ratio data?  Current Ratio 3.25  Debt to Equity 11.26%  Asset to Equity 1.46  Total Asset Turnover 1.01  Operating Profit Margin 15.34%  Net Profit Margin 8.58% a. 8.66% b. 12.65% c. 22.62% d. none of the above is correct

Applied Corporate Finance – FINN 400 (01) Quiz # 1 - Spring 2017 Total Points: 10

Name: _______________________ ID #: ________________

SELECT THE SINGLE BEST ANSWER. USE A CIRCLE TO INDICATE YOUR CHOICE. Questions in the quiz are based on Krispy Kreme Doughnuts (KKD), Inc. case study and assigned reading, “Z- Factor – Rescue by the Numbers”.

1.

Krispy Kreme generated the smallest proportion of its revenue from: a. Off premises sales b. Sale of mixes and doughnut making equipment c. On premises sales d. Franchise royalties and fees e. Online sales

2.

Which of the following statements is true? a. Krispy Kreme did not amortize the purchase cost of its seven Michigan franchise stores over the useful life of assets. b. The company declined any wrongdoing initially and claimed that it accounted for its franchise acquisitions in accordance with generally accepted accounting principles (GAAP). c. The company initially claimed that the recent low-carbohydrate diet trend in US has caused the Krispy’s earnings to decline. d. all of the above are true e. Only b and c above are true

3.

Which of the following statements is true? a. By 2005 most analysts covering KKD were making sell recommendations to investors. b. KKD’s largest competitor in the U. S. was Dunkin’ Donuts for which the majority of sales came from coffee. c. Roughly 60% of KKD sales were derived from its signature product, the glazed doughnut. d. all of the above are true e. only b and c above are true

4.

Which of the following statements is not correct? The statements refer to Z-Factor Rescue by the Numbers article: a. Z-score is an overall index of corporate financial health. b. According to the model, financially strong companies have Z-score greater than 2.99 c. Of the five financial ratios in the Z-score model, four had total assets in the denominator. d. Z-score model’s prediction accuracy deteriorates closer to the event e. more than one statement is not correct

5.

Which one of the following was the primary reason for KKD stock price to plummet more than 80% from its peak price in August 2003? a. excessive borrowing, high leverage b. inefficient utilization of firm’s assets. c. declining profit margins over the years d. revelation of aggressive accounting treatment for franchise rights reacquisitions made by KKD and reduction in earnings guidance e. none of the above

6.

Which one of the following ratios is not part of the Z-score model? a. fixed assets/total assets b. EBIT/total assets c. net working capital/total assets d. retained earnings/book value of total debt e. accumulated retained earnings/total assets

7.

Which of the following statements is true? I. One of the key reasons for problems at KKD was excessive use of leverage. II. According to some analysts KKD management had lost focus on operations as too many units were opened in poor locations. a. I is true b. II is true c. both are true d. both are false

8.

Which of the following statements regarding KKD is not true? a. KKD IPO in 2000 was one of the largest and successful public offerings. b. Off-premises sales were to grocery stores, convenience stores, and a small percentage were sold as private label. c. As Krispy Kreme’s fundamentals and accounting treatment became known during the second half of 2004, analyst covering the stock became increasingly optimistic in their recommendations. d. All franchisees were required to buy mixes and equipment from Krispy Kreme which the firm manufactured and distributed e. Two of the above are not true.

9.

What was the ROE of KKD based on the following ratio data?  Current Ratio 1.39  Debt to Equity 47.96%  Asset to Equity 2.20  Total Asset Turnover 2.10  Operating Profit Margin 4.92%  Net Profit Margin 2.70% a. 8.66% b. 12.65% c. 12.47% d. none of the above is correct

10.

Which of the following statements is true? a. The Z-score model was originally developed by Professor Altman as a bankruptcy prediction tool. b. The Z-score model is based on a multivariate statistical method called Multiple Discriminant Analysis (MDA). c. The Z-score model is also known as the brokers tool to help investors in their investment decisions d. The Z-score model (referred to in the reading) was developed using 200 healthy and 200 bankrupt companies d. only b and c above are true e. only a, b, and c above are true

Applied Corporate Finance – FINN 400 (01) Quiz # 2 - Spring 2017 Total Points: 10

Name: _______________________ ID #: ________________

SELECT THE SINGLE BEST ANSWER. USE A CIRCLE TO INDICATE YOUR CHOICE.

1.

Which of the following statements is true? I. The most critical step in constructing a pro forma financial statements is the sales forecast. II. A decrease in a firm’s average collection period from 60 to 40 days, other things held constant, would reduce the additional funds needed requirement. III. Pro forma statements are used to assess a firm’s historical performance. a. I and II only b. I and III only c. II and III only d. I, II, and III

2.

Which of the following statements is true? (Source: The Body Shop International case study) I. Anita Roddick, the founder of The Body Shop, was finance savvy and focused on financial results of the company. II. The Body Shop once the fastest growing manufacturer-retailer ran aground in the late 1990s because of stiff competition from new entrants of the naturally based skin and hair-care products. a. I is true b. II is true c. both are true d. both are false

3.

Which of the following would reduce the external funds needed for financing the firm’s operations (other things held constant)? a. an increase in the dividend payout ratio b. an increase in the expected growth rate in sales c. an increase in the net profit margin d. an increase in the capital intensity ratio (A/S) e. only b and c above

4.

Which of the following statements is true? (Source: The Body Shop International case study) I. II. a. c.

Two classic financial forecasting methods are: T-account forecasting and percentage-of-sale forecasting. One of the circularity problem in preparing pro forma statements arises from the income statement and balance sheet dependence on each other. I is true b. II is true Both are true d Both are false

5.

All of the following current liabilities normally vary with sales (i.e., spontaneous liabilities), EXCEPT a. accounts payable b. accrued wages c. notes payable d. accrued taxes

6.

Which of the following statements is true? I. In preparing the common size balance sheet, all items on the balance sheet are expressed as a percentage of sale. II. ROE can be decomposed into: ROE = net profit margin x receivable turnover x equity multiplier a. I is true b. II is true c. Both are true d. Both are false

7.

Given the following balance sheet, determine the amount of growth that the firm could experience without needing additional funds (sustainable growth). Current sales are $600, the net profit margins is 5%, and the dividend payout ratio is 25%. Assume the firm is currently operating at full capacity. Hint: Solve for growth in the AFN equation. [Hint: External Funds Needed (EFN) = (A*/S)S - (L*/S)S - (NPM)(S1) (1-DPO)] Cash Accounts Receivable Inventories Net fixed asssets a. b. c. d. e.

Total Asset 3% 4% 5% 6% 7%

$ 30 120 300 450

Accounts payable Notes payable Mortgage bonds Common stock Retained earnings $ 900 Total Liab. & Equity

$150 15 225 75 450 $ 900

Use the following information for the next 2 questions: Jimmy’s Pizza, Inc., had the following balance sheet last year: (in thousands) Cash Accounts Receivable Inventories Net fixed aswsets

Accounts payable $ 20 Notes payable 40 Long term debt 80 Common stock 80 Retained earnings 20 Total Asset $ 240 Total Liab. & Equity $ 240 Sales for the year just ended were $400. Jimmy has invented a fantastic pizza which he expects to increase sales by $200. Since most of his business is take-out, he feels he can handle the increase without adding any fixed assets. The profit margin is 5% and dividend payout ratio is 60%. 8.

$ 20 20 20 180

What will be Jimmy’s additional funds requirement (AFN) if his expectations are realized? EFN = 30 -10 – 12 = $8

9-10. Prepare the pro forma balance sheet for Jimmy’s Pizza. Assume that all external capital requirements are met by bank loans and are reflected in notes payable.

Applied Corporate Finance – FINN 400 (01)* Quiz # 2 - Spring 2017 Total Points: 10

Name: _______________________ ID #: ________________

SELECT THE SINGLE BEST ANSWER. USE A CIRCLE TO INDICATE YOUR CHOICE.

1.

Which of the following statements is true? I. Pro forma statements are used to evaluate a firm’s historical performance. II. A decrease in a firm’s average collection period from 60 to 40 days, other things held constant, would reduce the additional funds needed requirement. III. The most critical step in constructing a pro forma financial statements is the sales forecast. a. I and II only b. I and III only c. II and III only d. I, II, and III

2.

Which of the following statements is true? (Source: The Body Shop International case study) I. Anita Roddick, the founder of The Body Shop, was not finance savvy and did not care much about financial results of the company. II. The Body Shop once the fastest growing manufacturer-retailer ran aground in the late 1990s because of stiff competition from new entrants of the naturally based skin and hair-care products. a. I is true b. II is true c. both are true d. both are false

3.

Which of the following would reduce the external funds needed for financing the firm’s operations (other things held constant)? a. an increase in the dividend payout ratio b. an increase in the expected growth rate in sales c. an increase in the net profit margin d. an increase in the capital intensity ratio (A/S) e. only b and c above

4.

Which of the following statements is true? (Source: The Body Shop International case study) I. II. a. c.

Two classic financial forecasting methods are: T-account forecasting and percentage-of-sale forecasting. One of the circularity problem in preparing pro forma statements arises from the income statement and balance sheet dependence on each other. I is true b. II is true Both are true d Both are false

5.

All of the following current liabilities normally vary with sales (i.e., spontaneous liabilities), EXCEPT a. accounts payable b. notes payable c. accrued wages d. accrued taxes

6.

Which of the following statements is true? I. In preparing the common size income statement, all items on the income statement are expressed as a percentage of sale. II. ROE can be decomposed into: ROE = net profit margin x total asset turnover x equity multiplier a. I is true b. II is true c. Both are true d. Both are false

7.

Given the following balance sheet, determine the amount of growth that the firm could experience without needing additional funds (sustainable growth). Current sales are $600, the net profit margins is 5%, and the dividend payout ratio is 25%. Assume the firm is currently operating at full capacity. Hint: Solve for growth in the AFN equation. [Hint: External Funds Needed (EFN) = (A*/S)S - (L*/S)S - (NPM)(S1) (1-DPO)] Cash Accounts Receivable Inventories Net fixed asssets a. b. c. d. e.

Total Asset 3% 4% 5% 6% 7%

$ 30 120 300 450

Accounts payable Notes payable Mortgage bonds Common stock Retained earnings $ 900 Total Liab. & Equity

$150 15 225 75 450 $ 900

Use the following information for the next 2 questions: Jimmy’s Pizza, Inc., had the following balance sheet last year: (in thousands) Cash Accounts Receivable Inventories Net fixed aswsets

Accounts payable $ 20 Notes payable 40 Long term debt 80 Common stock 80 Retained earnings 20 Total Asset $ 240 Total Liab. & Equity $ 240 Sales for the year just ended were $400. Jimmy has invented a fantastic pizza which he expects to increase sales by $200. Since most of his business is take-out, he feels he can handle the increase without adding any fixed assets. The profit margin is 5% and dividend payout ratio is 60%. 8.

$ 20 20 20 180

What will be Jimmy’s additional funds requirement (AFN) if his expectations are realized? EFN = 30 -10 – 12 = $8

9-10. Prepare the pro forma balance sheet for Jimmy’s Pizza. Assume that all external capital requirements are met by bank loans and are reflected in notes payable.

Applied Corporate Finance – FINN 400 (01) Quiz # 3 - Spring 2017 Total Points: 10 (Financial Calculator Quiz)

Name: _______________________ ID #: ________________

Use the following information to answer the next four questions. Use the following information to answer the next four questions. A firm is considering Projects S and L, whose cash flows (in millions) are shown below. These are mutually exclusive and equally risky projects. The firm’s WACC for such projects is 13%. 0 1 2 3 4 CFS -1,025 375 380 385 390 CFL -2,150 750 759 768 777 1.

What is the NPV of project S and L at the given discount rate? a. 185.59 and 266.80, respectively b. 110.47 and 116.94, respectively c. 266.8 and 116.94, respectively d. 185.59 and 110.47, respectively e. none of the above is correct

2.

What is the IRR of Project S and L? a. 15.57% and 18.06% b. 18.06% and 15.57% c. 13.27% and 15.57% d. 18.06 and 13.27% e. none of the above is correct

3.

The CEO wants to use the IRR criterion, while the CFO favors the NPV method, and you were hired to advise the firm on the best procedure. If the CEO's preferred criterion is used, how much value will the firm lose as a result of this decision? a. 81.21 million b. 6.47 million c. 75.12 million d. cannot be determined from the information provided

4.

Which of the following statements is true? I. The IRR of the delta project is higher than the firm’s WACC leading to the same decision as NPV (i.e., select project L). II. There is no conflict between NPV and IRR, i.e., both recommend the same project without any adaptation. a. I is true b. II is true c. both are true d. both are false

5.

Given the four years return data for the market and Biotech Company, answer the next two questions. Return Return Year Biotech Market % % 2012 20 10 2013 30 20 2014 20 15 2015 10 7 Avg 20 13 What is the stock’s beta as a measure of its systematic risk? a. 0.98 b. 1.33 c. 1.43 d. 1.04 e. none of the above is correct

6.

Which of the following statements is true? I. The standard deviation of the sample data of market returns is about 32.67. II. Given a risk-free rate of 5 percent and market risk-premium is 8 percent, the required return on Jerry’s sock will be higher than 13 percent. a. I only b. II only c. Both are true d. Both are false

7.

A corporate bond matures in 1...