Financial Analysis Questions PDF
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This document contains multiple-choice questions related to financial analysis topics such as APV, DCF, and financial leverage. The questions cover various aspects like adjusted present value, discounted free cash flow, and weighted-average cost of capital.
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Q1. Financial leverage refers to: A. the excess cash flow available to a firm for future expansion activities B. the raw value of firm’s core operations that can be used for future capital investment C. the use of debt in a firm’s capital structure D. the firm’s ability to secure competitive prices...
Q1. Financial leverage refers to: A. the excess cash flow available to a firm for future expansion activities B. the raw value of firm’s core operations that can be used for future capital investment C. the use of debt in a firm’s capital structure D. the firm’s ability to secure competitive prices for raw materials to use in manufacturing products E. none of the above Q2. Which statement is not correct? A. To understand the adjusted present value model (APV), the analyst needs to understand the relationship between value and leverage. B. The APV model estimates the value of a firm’s core operations in two parts, one without leverage, the other using leverage to add value to core operations. C. The APV model captures the value created by leverage better than the discounted free cash flow model. D. The APV model discounts the free cash flow stream at the weighted-average cost of capital. E. All statements are correct Q3. Assume that an all-equity financed company with cost of equity of 10% generates unlevered FCFs of $13m in perpetuity. It plans to take on perpetual debt of $100m with interest rate of 5%. Tax rate is 20%. What is the value of this company after the change in capital structure? A. $13m B. $130m C. $135m D. $150m E. None of the above Q4. Which statement is correct? A. It is always better to use DCF than APV because DCF uses a single discount rate. B. EVA is more precise than APV. C. It is better to use levered FCFs than unlevered FCFs in the APV calculation because levered FCFs account for leverage effects D. When interest payments are a perpetuity with a constant and positive growth rate, the present value of the tax shield is equal to T*D (tax rate * debt level) E. None of the above
