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Fi515 Final Exam Essay

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Final Exam Page 1 1. (TCO A) Which of the following statements is NOT correct? (Points : 5) | The corporate valuation model can be used both for companies that pay dividends and those that do not pay dividends. The corporate valuation model discounts free cash flows by the required return on equity. The corporate valuation model can be used to find the value of a division. An important step in applying the corporate valuation model is forecasting the firm's pro forma financial statements. Free cash flows are assumed to grow at a constant rate beyond a specified date in order to find the horizon, or terminal, value. | 2. (TCO F) Which of the following statements is correct? (Points : …show more content…

$102.8 b. $108.2 c. $113.9 d. $119.9 e. $125.9 (Points : 30) Calculation done in Excel Sheet AFN= (A0*/S0 ) ΔS – (L0*/S0) ΔS –S1 × M × (1-POR) Reference (Brigham, p. 480) Also Homework Problem 13-10 For set up of problem Tool Kit Chapter 12 AFN Tab Last years Sales=S0 350 Last Years Acc. Payable $40 Sales Growth Rate=g 30% Last Years Notes Payable $50 Last Years Total Assets=A0*500 Last Years Accruals $30 Last Years Profit Margin=PM5% Target Payout Ratio 60% Part I. Inputs and Definitions S0: Last year's sales, i.e., 2010 sales: $350 g: Forecasted growth rate in sales: 30.00% S1: Coming year's sales, i.e., 2011 sales = S0 × (1 + g): 455 (350 x (1+.30)=455) gS0: Change in sales = S1 – S2 = ΔS: $105.00 (455-350=105) A0*: Assets that must increase to support the increase in sales: 500 A0* / S0: Required assets per dollar of sales: 142.86% (500/350*100=142.86) L0*: Last year's spontaneous assets, i.e., payable + accruals: $70 (40+30=70) L0* /S0: Spontaneous liabilities per dollar of sales: 20.00% (70/350=20%) Profit margin (M): 2010 profit margin = net income/sales: 5% Payout ratio (POR): Last year's dividends / net income = % of income paid out: 60% PART 2 Additional Funds Needed to Support Growth AFN = Required Increase in Assets − Spontaneous

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