1. When would you be most likely to use a top-down approach to forecasting revenue?
a. As a stable, mature firm trying to predict next year's sales for your bestselling product.
b. As a startup firm estimating its first year of sales.
c. As a financially distressed firm.
d. As a 10-year private company about to go public in its first IPO.
2. Your firm's last three years of sales have been $1 million, $2 million, and $3 million (oldest to most recent). Year-end inventory was $250k, $500k, and $750k respectively.
You are considering purchasing an inventory system that will double your inventory turnover. Which of the following is a good estimate for the amount you'll save with regard to inventory investment next year, assuming your sales will be $4 million - i.e., what's the difference between your estimates of inventory with the system and without?
(Assume that your costs of goods sold stay at a constant percentage of sales throughout the past three years and next year; use same-year CoGS/Inv as your inventory turnover formula.)
a. 2000
b. 1500
c. 200
d. 500
3. You forecast the free cash flows for your target firm over the next five years. The final cash flow, at the end of year five, is projected to be $215 million.
Assuming a FCF terminal growth rate of 2.5% and an overall discount rate of 11%, what is the present valueof all future cash flows after the planning period? (Hint: do not forget to discount to today.)
a. $1.50 billion
b. $2.59 billion
c. $2.53 billion
d. $1.54 billion
e. There isn't enough information to answer the question.
3. Which of the following formulas only includes accounts that should be used in the operating net working capital calculation?
a. (AR + Inventory + Short term investments) - (AP + Accrued Expenses + Short-term Debt + Current portion of LTD)
b. (AR + Inventory) - (AP + Accrued Expenses + Short-term Debt + Current portion of LTD)
c. (AR + Inventory) - (AP + Accrued Expenses + Short-term Debt)
d. (Short term investments) - (Short-term Debt + Current portion of LTD)
e. (AR + Inventory) - (AP + Accrued Expenses)