Worksheetstodo corporate
Total questions: 69
Worksheet time: 35mins
You know that a gross liquidation value of the company is 1,523,500 EUR, liquidation costs 120,000 EUR, liabilities to the secured creditors 955,000 and liabilities to unsecured creditors 468,500. Choose the correct statement.
Claims of shareholders will be fully satisfied.
Claims of all creditors will be satisfied.
Claims of unsecured creditors won't be fully satisfied.
Claims of shareholders will be satisfied partially.
What is the main advantage of using valuation multiples?
They eliminate all market noise.
They allow quick comparison with similar companies.
They do not require any financial data.
They always produce a more accurate valuation than DCF.
A company enters liquidation. Which statement is most accurate regarding the distribution of liquidation proceeds?
Unsecured creditors are paid before liquidation costs, but after secured creditors.
Secured creditors are always paid their full claim, regardless of collateral value.
Unsecured creditors receive payment only from the remaining asset pool after liquidation costs and secured creditors have been paid from their collateral.
Shareholders may receive liquidation proceeds even if unsecured creditors are not paid in full.
Which of the following best represents the net liquidation value of a company?
The replacement cost of all assets minus short-term debt.
The amount received from selling assets at liquidation prices minus liabilities.
The total book value of all assets minus all liabilities.
The market value of all assets minus total debt.
Choose the incorrect statement regarding liquidation value:
In the case of voluntary liquidation, the liquidation value is usually lower.
This is an approach suitable for valuing a loss-making company.
If the liquidation value is significantly lower than the rescue value, a company should undertake restructuring.
In the case of liquidation under pressure, the liquidation value is usually lower.
Choose the incorrect statement regarding the value of a company:
The valuation of a company represents an opinion on the price that should be paid for it.
There is no objective value for a company.
There is a basis of value that allows us to determine an objectified value.
The result of a valuation is a value which is objective.
Which method of business valuation is most commonly used in practice?
Discouted cash flow model.
Economic value added.
Liquidation value.
Dividend discount mode
What is the net value of a company?
The value of equity.
The value for the owners and main creditors.
The value for creditors.
The value of the company as a whole.
After project extension, NPV is most sensitive to:
Change in VC.
Quantity change.
Price change.
Change in FC.
After project extension, NPV is least sensitive to:
Price change.
Quantity change.
Change in FC.
Change in VC.
In financial break-even, the OCF is equal to
OCF = 0
NPV = 0
OCF = depreciation
P=VC
We calculate base case, upper and lower bound in
NPV calculation
Black-Scholes model
Scenario analysis
Real options
When we consider only change in one variable, but all its possible values, we perform
Scenario analysis
Real options
Black-Scholes model
Sensitivity analysis
The possibility to wait, or delay project represents a
Real option
Positive NPV
Problem
Negative NPV
What probability distribution is used in Black-Scholes formula in real options evaluation?
Normal distribution
t-distribution
Chi-square distribution
F-distribution
If the beta coefficient equals to 1.33, it means that:
The financial risk of a given asset is higher than the risk of an average asset.
The systematic risk of a given asset is higher than the risk of the average asset.
The systematic risk of a given asset is lower than the risk of the average asset.
The financial risk of a given asset is lower than the risk of an average asset.
If the current market price of the bond is higher than its nominal value, then the following applies:
The yield to maturity is negative.
The yield to maturity is higher than the bond's coupon rate.
The yield to maturity is lower than the bond's coupon rate.
The yield to maturity is equal to the bond's coupon rate.
Select the incorrect statement regarding the dividend discount model:
The cost of equity capital is very sensitive to changes in the growth rate.
To use the model, the company has to pay dividends.
Determining the growth rate is key to the model.
The model works with risk.
From the lessee's perspective, which of the following is a sensible reason to prefer leasing over borrowing and buying?
Leasing "preserves capital" because no contractual payments are required in the future
Leasing is always cheaper than issuing secured debt with the same maturity
Leasing avoids the need to forecast demand or technology over the life of the asset
The lessor can exploit depreciation tax shields more effectively and share the benefit via lower rentals
Which statement best describes the "dubious reason for leasing" discussed in corporate finance?
The observation that leasing can bundle maintenance and other services
The claim that leasing preserves capital simply because the lessor provides 100% financing
The fact that leasing may relax borrowing constraints for small or high-risk firms
The idea that leasing can transfer residual-value risk to the lessor
In a financial lease, which feature most clearly makes it economically similar to a secured term loan for the lessee?
The lessor always provides full maintenance and insurance services
The lessee can freely terminate the lease without penalty if market conditions change
The lease term is shorter than the assets economic life and the residual value risk stays with lessee
The lease is long-term, non-cancellable, and largely amortises the asset cost through fixed rentals
Which cash flows are lost to the lessee when it chooses a financial lease instead of borrowing and buying, and must therefore be included
as inflows in the NAL calculation?
Lease rental payments that will now be paid to the lessor
Depreciation and interest tax shields that would have been obtained under ownership
Upfront transaction cost associated with arranging a secured loan
Residual value proceeds from selling the asset at time 0
Which of the following best characterises an operating lease compared with a financial lease?
It requires the lessee to capitalise a right of use asset but not to recognise any liability
I is always fully amortising and non-cancelable over the economic life of the asset
It always includes a bargain purchase option for the lease at the end of the term
It topically involves a shorter, cancellable contract where the lessor bears significant residual-value risk
A firm enters into a sale-and-leaseback of its headquarters building. What is the primary economic effect on the firms capital structure?
It eliminates all exposure to property market risk and operating risk related to the building
It reduces leverage because the building is removed from the balance sheet and no liability is recognised
It converts an illiquid owned asset into cash while adding a lease liability that is similar to secured debt
It automatically improves interest coverage ratios without affecting cash flows
A company engaged in the development of sustainable materials plans to implement a project that will expand its production capabilities. In terms of risk, we can compare the project with the riskiness of the French stock market, for which the expected return was evaluated at 10%. The yield of French government bonds is 4.5%. What is the minimum acceptable rate of return for the planned project?
14.5 %
10%
4.5%
5.5%
The goal of capital structure is
Minimize the amount of debt financing in the capital structure, because it is significantly riskier than equity.
Determine a capital structure that maximazes the value of the company by minimizing the WACC
Determine a capital structure that maximazes the value of the company by maximizing the WACC
Maximize the amount of debt financing in the capital structure, because it is significantly cheaper than equity.
What should be the main goal of a corporation?
Maximizing project activities.
Maximazing the company's value.
Maximizing the company's profit.
Minimizing costs.
Agency costs do not include:
Manager salary costs.
Manager monitoring costs.
Costs related to establishing rules and procedures that prevent the emergence of agency problems.
Intervention costs in the event of an agency problem being detected.
The principle of Fisher´s separation theorem is:
Maximazing the value of the company leads to maximization of wealth of the owners.
Maximizing the value of the company is not related to the wealth of the owners.
Maximizing the profit of the company is not related to the wealth of the owners.
Maximizing the profit of the company leads to maximization of the wealth of the owners.
Select an intangible asset:
5% share in a EV company
Goodwill.
Bond.
Business plant.
Which of the following represents an example of CAPEX?
Investment in tangible assets.
Change in capital structure.
Investment in inventory.
Use of long-term financing.
Sources of cash do not include:
Decrease in current liabilities.
Decrease in fixed assets (due to sale).
Use of debt financing.
Decrease in receivables.
Choose which of the company´s decisions is an investment decision:
Buying a competing company.
Reinvestment of profit.
Bond issue.
Share issue.
Choose the correct statement regading responsible business:
Responsible business is in line with the goal of maximizing the value of the company.
Responsible business can be identified with CSR (corporate social responsibility).
Responsible business does not concern the main activity of the company.
The interests of other interested parties (stakeholders) are not taken into account within the framework of responsible business.
You know that the required rate of return of the investment project is 15%, the IRR of the project is 12.5%.
IRR < required rate of return, the project shlould not be implemented.
IRR > required rate of return, the project should be implemented.
IRR < required rate of return, the project should be implemented.
IRR > required rate of return, the project should not be implemented.
Net working capital is positive if:
Current assets are higher than current liabilities.
Current assets are lower than current liabilities.
Shareholders' equity is higher than liabilities.
Shareholders' equity Is lower than current assets.
Market capitalization is:
Sum of book value of equity and debt.
Difference between net income and cost of capital.
Number of shares times their current price.
Market value of long-term liabilities.
Choose the correct statement about liquidity ratios:
When assessing liquidity, it is relevant whetger the company uses cash managment tools
t does not need to be assessed in connection with the trend in liquidity development and the company's profitability.
The lower the value, the greater the ability to satisfy the company's short-term obligations.
It is necessary to strictly adhere to the recommended values.
What impact will the use of a short-term bank loan (its increase by 100) have on the current liquidity ratio?
The current liquidity ratio will increase.
The current liquidity ratio will decrease.
We do not have enough information to solve the task.
The current liquidity ratio will not change.
If the price of a bond is higher that its face value, what is the relationship between the coupon rate and yield to maturity?
The yield to maturity is lower than the coupon rate
The yield to maturity is higher than the coupon rate.
There is no relationship between the above.
The yield to maturity is always equal to the coupon rate.
Choose the incorrect statement regarding the opportunity cost of capital:
Its determination does not depend on internal factors.
The opportunity cost of capital is determined by external factors.
When determining them, alternatives with the same risk have be taken into account.
Its determination depends on both external and internal factors.
What can cause an increase in profit and is not good for the company in the long term?
Reduction of investments, including investments in research and development.
Reduction in equity.
Increase in dividens
Increase in wages.
What can be stated based on the financial leverage value:
Liabilities> Shareholders equity
Shareholders equity > Liabilities
Liabilities = Shareholders equity
Shareholders equity < 0
Choose the correct statement, if you know that all else equal, in the fiscal year when long-lived equipment is purchased:
Depreciation expense increases.
Cash from financing activities decreases.
Cash from operations decreases.
Net income is reduced by the amount of the purchase.
Choose the correct statement regarding operating cash flow:
Operating CF is posively affected by depreciation, decrease in inventories, decrease in accounts receivable, and increase in accounts payable.
Operating CF is negatively affected by depreciation, decrease in inventories, increase in accounts receivable, and decrease in accounts payable.
Operating CF is negatively affected by depreciation, decrease in inventories, decrease in accounts receivable, and increase in accounts payable.
Operating CF is positively affected by depreciation, decrease in inventories, increase in accounts receivable, and decrease in accounts payable.
Choose the correct statement regarding the ratio of accumulated depreciation to gross PP&E.
An increasing value can indicate that the company faces an ageing asset base which will requiere investment.
A decreasing value indicates that accelerated method of depreciation is used by a company.
An increasing value indicates that the company regularly invests in new fixed assets.
A decreasing value can indicate that the company faces an ageing asset base which will require investment.
Select the incorrect statement regarding sales planning:
The sales plan is based only on historical development.
When planning sales, we should take into account factors that affect the demand for a given product.
We use the sales plan as a basis for planning other parts of the financial plan.
The type of competition plays a role when planning sales.
We know the following information: sales in 2022 were 2,500 mil. EUR, company operates at a 75% of capacity. The company plans sales of 3,250 mil. EUR in the next period. The value of fixed assets is EUR 2,000 mil. EUR. Will it be necessary to expand existing capacity, i.e. invest in fixed assets, or not (ceteris paribus)?
The existing capacity is sufficient because the planed sales are lower than full-capacity sales.
The existing capacity is not sufficient because the planed sales are higher than full-capacity sales.
We do not know enough information to solve the task.
The existing capacity is not sufficient; the company needs 0.60 EUR in fixed assets in every 1 EUR in sales.
What applies to the working capital plan (for a business that operates several years in the market)?
When planning the level of inventory, receivables and payables, we should base our calculations on number of days of inventory, receivables and paybles and the sales plan.
Working capital accounts should be planned individually without reference to past development.
When planning the level of cash, we always follow liquidity level (current ratio).
The working capital plan can be omitted when drawing up a financial plan.
What applies to the plan of investments?
It should also take into account the current capacity utilization.
It should be based only on the plan of sales.
It should be based only on the historical development of investment activity.
It is based only on the actual need for assets.
If a company has a net profit of 750 mil. EUR and we know that it paid dividends of 250 mil. EUR, what is the plowback ratio?
33.33%
66.67%
25.00%
75.00%
Let us consider a situation where a company has no internal resources that could be used to finance new assets. It projects 15% growth in sales and for that situation it plans to increase its assets by more than the planned increase in retained earnings, then the following applies:
EFN>0
EFN=0
More information is needed to draw a conclusion.
EFN<0
In ESG-adjusted valuation, excessive employee turnover primarily affects which component of FCFF?
Terminal growth rate directly.
Tax shield valuation.
Capital structure weights.
Operating expenses.
What probability distribution is used in Black-Scholes formula in real options evaluation?
Normal distribution
Chi-square distribution
t-distribution
f-distribution
What is NOT typical for financial leasing:
The lessee is not responsible for the insurance and maintenance of the asset.
The lessee can depreciate the leased asset.
The lessor only partially depreciates the lease.
The lessor pays the costs related to the asset (insurance, maintenance).
Which of the following is typical for a venture capitalist?
A VC provides short-term loans to small businesses with guaranteed returns.
A AV invests in early-stage companies in exchange for equity ownership.
A VC trades stocks and bonds on public markets for quick profits.
A VC finances buyouts of mature, established companies using debt.
What is the gross value of a company?
The value of the company as a whole.
The value of equity.
The value for creditors.
The value for the owners.
Why does cyber risk primarily affect the valuation through WACC rather than direct cash flow adjustments?
It increases systematic risk and equity risk premium.
It lowers marginal tax rates.
It permanently distorts depreciation schedules.
It artificially inflates reinvestment rates.
We mainly use the Profitability Index
In case of capital restriction
If NPV is positive
If NPV is negative
Where the IRR is zero at a discount rate equal to the IRR
If the internal rate of return is 6% and the firm's discount rate is 9%
The net present value of the project is positive
The net present value of the project is negative
The net present value of the project cannot be determined
The project's NPV is zero
The most common non-operating assets do not include:
Inventories.
Cash
Long-term financial assets.
Short-term financial assets.
The asset usually passes to the lessee in the case of:
Financial lease.
Operating lease.
In no case.
Financial and operating leases.
Choose the correct statement regarding the growth rate of the terminal value:
It should not be higher than the growth rate of the economy in which the company operates.
It cannot be determined as the long-term expected growth rate of the relevant market.
It is determined based on the historical growth rate of the economy.
It is always equal to 2%.
The cash flow of a project includes:
Operating cash flow (less depreciation), capital expenditure and working capital.
Operating cash flow, capital expenditure and working capital changes.
Operating cash flow (less depreciation), capital expenditures, working capital changes and opportunity cost.
Operating cash flow, capital expenditure, working capital and sunk costs.
In ESG valutation, carbon pricing is tipically integrated into which part of the model?
Terminal value.
Beta adjustment.
Operating cash flows.
Sales forecast only.
Why is depreciation subtracted when deriving project cash flows using the indirect method?
Because it is not a cash expenditure.
Because it is a cash expenditure.
Because they represent the use of real capital.
When calculating project CF using the indirect method, we do not subtract depreciation
Why does ESG integration improve long-term risk management?
It eliminates all systematic risk.
It replaces traditional financial analysis.
It identifies non-financial risks before they materialize financially.
It guarantees superior stock returns.
If we want to determine a value for a specific buyer who has an idea of the future form of the company, we talk about:
Investment value
Fair value.
Liquidation value.
Objectified value.
We calculate bases case, upper and lowerbound in:
Scenario analysis.
Real options.
NPV calculation.
Black-Scholes model.
