Quiz 3 - IB

A stock with a beta greater than 1.0 has

higher systemic risk than the market

which of the following is a long-term asset

prepaid expense, accounts receivables, inventory

Which of the following are relevant for creaƟng assumpƟons when projecƟng FCFF in a DCF? I. Historical Interest Expense II. Historical Growth Rates III. Classes of Debt SecuriƟes IV. Historical EBIT Margins

Which of the following factors help determine the length of the projecƟon period in a DCF? I. Sector II. Predictability of FCF III. Business Model IV. Maturity of Business

sector ll, predictability of FCF, business model, maturity of business

For which of the following companies would the DCF projecƟon period most likely be longer than five years?

utility

Which of the following types of companies would be expected to have high capital expenditures? I. Mining Company II. Heavy Equipment Manufacturer III. Mature Distributor IV. Oil and Gas Company

mining company, heavy equipment manufacturer, and oil and gas company

what do days outstanding measure

number of days it takes to collect payment after the sale of a product or service

What does days inventory held measure?

number of days it takes to sell its inventory

what do inventory turns measure

number of company turns over its inventory per year

Calculate DIH assuming a company has $3.5B in revenue, $2.4B in COGS, and $525MM in inventory A. 70 days B. 75 days C. 80 days D. 85 days

80 →

What does days payable outstanding measure?

number of days it takes a company to make a payment on outstanding purchases of goods and services

What method is used to calculate the cost of equity

capm

Which of the following is the most appropriate market risk premium to use in the calculaƟon of the cost of equity?

5-8%

Which of the following sectors should have the lowest beta? A. Social Media B. UƟlity C. Homebuilder D. Chemicals

utility

How does the mid-year convenƟon affect PGM and EMM:

mid-year conversion is used in both PGM and EMM

Which method is preferred to determine cost of debt for the WACC calculaƟon if the target company’s debt is not traded?

calculate by determining implied credit rating on target capital structure