Question 11pts

Holding everything else constant, an increase in cash ________ the firm's net debt.

will decrease

will have no impact on

will increase

may increase or decrease

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Question 21pts

Ephemeral is an all-equity firm with an estimated market value of $300,000. The firm sells $100,000 of debt and uses the proceeds to purchase outstanding equity. Compute the weight in equity and the weight in debt after the proposed financing and repurchase of equity.

0.2/0.8

0.25/0.75

0.67/0.33

0.5/0.5

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Question 31pts

Your estimate of the market risk premium is 6%. The risk-free rate of return is 4.5% and General Motors has a beta of 1.6. What is General Motors' cost of equity capital? (Enter in decimal form. For example, enter .125 for 12.5%)

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Question 41pts

Oakridge Doughnuts had sales of $100 million in 2017. Its cost of sales were $70 million. If sales are expected to grow at 20% in 2018, compute the forecasted costs using the percent of sales method. (Enter your answer in millions. For example, enter 68 for $68 million)

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Question 51pts

Suppose we calculate the asset beta for a group of comparable companies and come up with 0.95 as an average. The private firm we are trying to value has net debt of $150MM and a market capitalization of $350MM. What should we use for our firm's equity beta?

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Question 61pts

The founder of a firm is considering selling it and wants to know its value. You tell him you can provide a rough estimate using the perpetuity formula. The company will generate free cash flow of $5 million over the next year and this cash flow is expected to grow at an annual rate of 3% forever. If the firm's WACC is 11%, what is the value of this company?

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Question 71pts

Snappy, Inc. has a market cap of $20 million and $12 million of bank debt. The bank debt costs 5% per year. The estimated equity beta is 1. If the market risk premium is 6% and the risk-free rate is 4%, compute the weighted average cost of capital if the firm's tax rate is 30%. (Enter in decimal form. For example, enter 0.105 for 10.5%)

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Question 81pts

You want to estimate a long run growth rate to use in the terminal value calculation. You estimate that the firm reinvests 25% of their earnings, and that their Return on Invested Capital (ROIC) is 11%. What is your estimate of their terminal growth rate? (Enter in decimal form. For example, enter 0.035 for 3.5%)

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Question 91pts

Pledrea Inc. just reported EBITDA of $5 million. You find that its three closest comparable companies have an average Enterprise Value/EBITDA multiple of 9. What is your estimate of enterprise value for Pledrea? (Enter in millions. For example, enter 30 for $30 million)

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Question 101pts

You perform a comps analysis on XYZ Inc. and find that they have an enterprise value of $100 million. You also know they have no excess cash and $20 million of debt. If they have 7 million shares outstanding, what is your estimate of the equity share price?