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

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

Accepted Answer

A) True 
 B)False

Question 3

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 4

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 5

Which one of the following components is not a component of the equity valuation cash flow?

Accepted Answer

A)  NOPAT
B)  depreciation and amortization expense
C)  change in net operating working capital (without surplus cash) 
D)  capital expenditures
E)  net debt issues

Question 6

The terminal or horizon value is the value of a venture at the end of its explicit forecast period.

Accepted Answer

A) True 
 B)False

Question 7

The "maximum dividend method" assumes that all surplus cash will be paid out as dividends.

Accepted Answer

A) True 
 B)False

Question 8

The "pseudo dividend method" (PDM)is a valuation method involving zero explicitly forecasted dividends and an adjustment to working capital to strip surplus cash.

Accepted Answer

A) True 
 B)False

Question 9

The MDM equity valuation method is an abbreviation for:

Accepted Answer

A)  minimum dividend method
B)  maximum discount method
C)  maximum dividend method
D)  minimum discount method
E)  Montgomery design method

Question 10

Estimate a venture's required rate of return based on the following information:terminal value = $400,000;current year's net income = $20,000;next year's expected cash flow = $25,000;and a constant growth rate = 7%.

Accepted Answer

A)  6%
B)  7%
C)  8%
D)  9%
E)  10%

Question 11

The "stepping stone" year is the second year after the explicit forecast period when valuing a venture.

Accepted Answer

A) True 
 B)False

Question 12

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 13

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

Accepted Answer

A) True 
 B)False

Question 14

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 15

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

Accepted Answer

A) True 
 B)False

Question 16

The maximum 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 17

The pseudo dividend method treats surplus cash either as stripped out while not in use or as employed outside the venture and stored in a zero NPV investment.

Accepted Answer

A) True 
 B)False

Question 18

The calculation of equity valuation cash flows nets the cash impact of all other balance sheet and income accounts to focus on the ______ account as the repository of any remaining cash flow.

Accepted Answer

A)  cash
B)  debt
C)  equity
D)  non-interest-bearing liabilities
E)  net income

Question 19

Post-money valuation is the pre-money valuation of a venture plus all monies previously contributed by the venture's founders.

Accepted Answer

A) True 
 B)False

Question 20

The PDM equity valuation method is an abbreviation for:

Accepted Answer

A)  pseudo dividend method
B)  proximate dividend method
C)  pseudo discount method
D)  proximate discount method
E)  pre-money discount method

Exam 9: Valuing Early-Stage Ventures

The calculation of equity valuation cash flows nets the cash impact of all other balance sheet and income accounts to focus on the ______ account as the repository of any remaining cash flow.

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Which one of the following components is not a component of the equity valuation cash flow?

Correct AnswerverifiedShow Answer

The terminal or horizon value is the value of a venture at the end of its explicit forecast period.

Correct AnswerverifiedShow Answer

The MDM equity valuation method is an abbreviation for:

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

The pseudo dividend method treats surplus cash either as stripped out while not in use or as employed outside the venture and stored in a zero NPV investment.

Correct AnswerverifiedShow Answer

The "maximum dividend method" assumes that all surplus cash will be paid out as dividends.

Correct AnswerverifiedShow Answer

The "pseudo dividend method" (PDM)is a valuation method involving zero explicitly forecasted dividends and an adjustment to working capital to strip surplus cash.

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

The pseudo dividend method is

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

The maximum dividend method is

Correct AnswerverifiedShow Answer

The "stepping stone" year is the second year after the explicit forecast period when valuing a venture.

Correct AnswerverifiedShow Answer

The PDM equity valuation method is an abbreviation for:

Correct AnswerverifiedShow Answer

Estimate a venture's required rate of return based on the following information:terminal value = $400,000;current year's net income = $20,000;next year's expected cash flow = $25,000;and a constant growth rate = 7%.

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Post-money valuation is the pre-money valuation of a venture plus all monies previously contributed by the venture's founders.

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

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