Question 1

"Net operating working capital" is current assets other than surplus cash less non-interest-bearing current liabilities.

Accepted Answer

A) True 
 B)False

Question 2

Pre-money valuation is the present value of a venture prior to a new money investment.

Accepted Answer

A) True 
 B)False

Question 3

"Required cash" is?

Accepted Answer

A)  the cash needed to pay interest expense
B)  a valuation method for early stage ventures
C)  cash needed to cover a venture's day-to-day operations
D)  cash available to pay as a dividend

Question 4

The purpose of the stepping stone year is?

Accepted Answer

A)  to assure that there is sufficient required cash
B)  to assure that future dividends are constant
C)  to assure that investment flows are consistent with terminal growth rates
D)  to allow for a final year of higher-than-sustainable growth

Question 5

Which one of the following equity valuation methods records surplus cash on the balance sheet but assumes that the surplus cash is paid out over time for valuation purposes?

Accepted Answer

A)  maximum dividend method
B)  pseudo dividend method
C)  sustainable growth method
D)  return on equity method

Question 6

The "reversion value" is the future value of the terminal value.

Accepted Answer

A) True 
 B)False

Question 7

Most discounted cash flow valuations involve using cash flows from an:

Accepted Answer

A)  historical period,an explicit forecast period,and a terminal value
B)  historical period and a terminal value
C)  historical period and an explicit forecast period
D)  explicit forecast period and a terminal value

Question 8

Surplus cash is the cash remaining after required cash,all operating expenses,reinvestments,and dividends payouts are made.
T 17.Required cash is the amount of cash required to operate a venture through its day-to-day business.

Accepted Answer

A) True 
 B)False

Question 9

Applying the "maximum dividend method" (MDM)and the "pseudo dividend method" (PDM)result in different valuation estimates.

Accepted Answer

A) True 
 B)False

Question 10

Estimate a venture's terminal value based on the following information:current year's net income = $20,000; next year's expected cash flow = $26,000; constant future growth rate = 7%; and venture investors' required rate of return = 20%.

Accepted Answer

A)  $156,846
B)  $285,714
C)  $200,000
D)  $150,000
E)  $428,571

Question 11

The pseudo dividend method is

Accepted Answer

A)  the cleanest for valuing assets,but creates problems valuing surplus cash
B)  the cleanest for valuation purposes but its dividend-laden financial statements can dramatically understate the firm's cash position
C)  the cleanest for cash planning,but creates problems valuing the venture by discounting the dividends
D)  calculated by directly discounting the cash flow statement's projected dividend flow to investors,but ignores risks associated with periodic gluts of surplus cash

Question 12

The valuation approach involving discounting present value cash flows for risk and delay is called discounted cash flow (DCF).

Accepted Answer

A) True 
 B)False

Question 13

Estimate a venture's equity valuation cash flow based on the following information: net income = $6,372; depreciation = $4,600; change in net operating working capital = $2,415; capital expenditures = $6,900; and new debt issues = $1,000.

Accepted Answer

A)  $6,487
B)  $5,487
C)  $4,487
D)  $3,787
E)  $5,787

Question 14

To calculate a terminal value,one divides the next period's cash flow by the:

Accepted Answer

A)  constant discount rate plus a constant growth rate
B)  constant discount rate plus a variable growth rate
C)  constant discount rate minus a constant growth rate
D)  constant growth rate minus constant discount rate
E)  constant growth rate plus a variable discount rate

Question 15

Finding the present value of the horizon value produces the venture's reversion value.

Accepted Answer

A) True 
 B)False

Question 16

The present value of a set of future flows plus the current undiscounted flow is called?

Accepted Answer

A)  going-concern value
B)  present value
C)  terminal value
D)  reversion value
E)  net present value

Question 17

Surplus cash is the cash remaining after required cash,all operating expenses,and reinvestments are made.

Accepted Answer

A) True 
 B)False

Question 18

"Equity valuation cash flow" is defined as: net sales + depreciation and amortization expense - change in net operating working capital (excluding surplus cash)- capital expenditures + net debt issues.

Accepted Answer

A) True 
 B)False

Question 19

The wider the capitalization or "cap" rate (i.e.,the discount rate minus the growth rate in the terminal period),the higher the terminal value.

Accepted Answer

A) True 
 B)False

Question 20

The easiest way to value a venture is to discount the projected maximum dividend/issue stream.

Accepted Answer

A) True 
 B)False

Exam 10: Valuing Early-Stage Ventures

The valuation approach involving discounting present value cash flows for risk and delay is called discounted cash flow (DCF).

Correct AnswerverifiedShow Answer

"Net operating working capital" is current assets other than surplus cash less non-interest-bearing current liabilities.

Correct AnswerverifiedShow Answer

The easiest way to value a venture is to discount the projected maximum dividend/issue stream.

Correct AnswerverifiedShow Answer

Which one of the following equity valuation methods records surplus cash on the balance sheet but assumes that the surplus cash is paid out over time for valuation purposes?

Correct AnswerverifiedShow Answer

The "reversion value" is the future value of the terminal value.

Correct AnswerverifiedShow Answer

The wider the capitalization or "cap" rate (i.e.,the discount rate minus the growth rate in the terminal period),the higher the terminal value.

Correct AnswerverifiedShow Answer

Surplus cash is the cash remaining after required cash,all operating expenses,and reinvestments are made.

Correct AnswerverifiedShow Answer

Finding the present value of the horizon value produces the venture's reversion value.

Correct AnswerverifiedShow Answer

"Equity valuation cash flow" is defined as: net sales + depreciation and amortization expense - change in net operating working capital (excluding surplus cash)- capital expenditures + net debt issues.

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Pre-money valuation is the present value of a venture prior to a new money investment.

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To calculate a terminal value,one divides the next period's cash flow by the:

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Estimate a venture's equity valuation cash flow based on the following information: net income = $6,372; depreciation = $4,600; change in net operating working capital = $2,415; capital expenditures = $6,900; and new debt issues = $1,000.

Correct AnswerverifiedShow Answer

The purpose of the stepping stone year is?

Correct AnswerverifiedShow Answer

"Required cash" is?

Correct AnswerverifiedShow Answer

Applying the "maximum dividend method" (MDM)and the "pseudo dividend method" (PDM)result in different valuation estimates.

Correct AnswerverifiedShow Answer

Most discounted cash flow valuations involve using cash flows from an:

Correct AnswerverifiedShow Answer

The present value of a set of future flows plus the current undiscounted flow is called?

Correct AnswerverifiedShow Answer

The pseudo dividend method is

Correct AnswerverifiedShow Answer

Estimate a venture's terminal value based on the following information:current year's net income = $20,000; next year's expected cash flow = $26,000; constant future growth rate = 7%; and venture investors' required rate of return = 20%.

Correct AnswerverifiedShow Answer

Surplus cash is the cash remaining after required cash,all operating expenses,reinvestments,and dividends payouts are made. T 17.Required cash is the amount of cash required to operate a venture through its day-to-day business.

Correct AnswerverifiedShow Answer

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