SOLVED

1) What is one of the main reasons why managers are making shareholder interests paramount? A) To conform to changes in securities legislation. B) To attract shareholder funds in a highly competitive environment. C) Because of pressures from non-governmental regulatory agencies such as the Canadian Securities Commission. D) Because of activism from pressure groups composed of large numbers of small individual investors. E) Because managers’ interests almost always coincide with those of shareholders. 2) What is a significant problem with using conventional accounting measures of profit, or profit-based ratios? A) All sources of revenue to the business are not considered in traditional methods. B) Electronic data processing methods are demonstrating that these measures are obsolete. C) Accounting measures include the opportunity cost of shareholder equity, understating net income. D) There is often a mixture of historic values with current market values in the calculations. E) Risk, a qualitative intangible, is a factor in the calculation of income. 3) What is o ne of the reasons why Shareholder Value Analysis (SVA) is based upon Net Present Value (NPV) Analysis? A) NPV considers expected return for level of risk in its calculation. B) NPV can be modified to accommodate changes in accounting procedures. C) NPV uses only actual, current, measurable data in its calculation. D) NPV is easy to calculate and to interpret and is widely used.. E) NPV considers the size of the business in its calculation. 4) A company has a periodic expense for depreciation of $150,000 a month. Its accumulated depreciation for the period ending December 31 of the year just ended is $18 million on capital assets of $55 million. Based on this information, what adjustment is need when calculating free cash flows? A) $0.00 B) $150,000 C) $1.8 million D) $18 million E) $55 million 5) For the year just ending, Elena Electronics Inc. had sales revenue equal to $950,000, cost of goods sold $399,000, selling expenses $191,000, distribution expenses of $70,000, administration expenses of $62,000, depreciation expense $18,000, interest charges $44,000 and taxes at $57,000. During that year there was an increase in accounts receivable of $10,000 and no capital asset were purchased. What was the free cash flow generated for the year? A) $117,000 B) $161,000 C) $171,000 D) $321,000 E) $557,000 6) What is a value driver that a Human Resources manager could impact directly? A) Working Capital B) Taxes C) Operating Costs D) Fixed Capital E) Sales. 7) A company currently has $6.1 million in free cash flows and expects to have $8.4 million in the last year of its 5-year plan. If its weighted cost of capital is 12%, and its tax rate is 25%, what is its terminal value? A) $30.3 million B) $33.6 million C) $38.1 million D) $52.5 million E) $70.0 million 8) Grayson Scaffolding Inc. has a cost of capital of 9% and the following free cash flow projections over their five-year planning horizon: $3.4 million, 3.8 million, $4.5 million, $4.9 million, and $5.2 million. Using free cash flows, what is the total business value? A) $28.4 million B) $37.5 million C) $54.2 million D) $57.8 million E) $74.4 million 9) Free cash flows for the four-year planning horizon for Amherst Confectionery Co. Ltd. are projected to increase by $200,000 each year from a Year 1 base at $1.2 million. The company’s bonds and mortgages have a market value of $2.7 million and the company’s cost of capital is 8%. What is the value of Amherst Confectionery Co. Ltd to its shareholders? A) $7.9 million B) $18.7 million C) $21.4 million D) $24.7 million E) $27.4 million 10) What do Discounted Free Cash Flows represent? A) Income available for distribution to shareholders. B) Opportunity cost to shareholders of another corporation of equal risk. C) Cash available for distribution to shareholders and lenders. D) Economic value of the business. E) The equivalent of the total market value of the assets of the business. 1