FSA Final Exam

footnotes to financial stamentments most likely

provide additional information

transparency is best described as

providing information to owners and other stakeholders in an understandable manner

restatements are most often affecting

revenues

which of the following statements is incorrect

there is one formula used in calculating free cash flow accoring to GAAP

the larger the standard deviation of an assets return, the greater is the assets

total risk

the risk that can be diversified away is best described as

unsystematic risk

a comany that has cash flow from operations of 100 mil, free cash flow of 120, and net borrowings of 20 mil has capital expeditures closest to

0

which of the following will most likely have a higher yield at a point in time?

10 year BBB rated corporate bond

suppose the rist free rate of insterst is 4% and the market risk premium is 5%. a company with a stock beta of 1.2 has a cost of equity closest to

10%

if a comapany has cas flow from operations of 10 mil, capital expenditures of 2 mil, and net borrowings of 3 mil, its free cash from to equity is closest to

11 mil

a company with a marginal tax rate of 35% and a yield on any new debt issuance of 8% has an after-tax cost of debt closest to

2.8%

suppose a company currently pas $1 in dividends, and dividends are expected to grow at a rate of 5% per year for two years and then grow at a rate of 3% per year, ad infinitum. If investors require an 8% return on their investment, the value of a share is closest to

21.20

for a company with dividends that are expected to grow at a rate of 4% per year, a current dividend that is $1.50 per share, and investors who require a 9% roi, the value of a share of stock is closest to

31.20

if a company's net income is 30 mil, its depreciation is 10 mil, its interst expense is 5 mil, and its tax rate is 30%, the ompanys EBDA and EBITDA, respectively, are closest to

40 mil and 62 mil

A company with a price-earnings ratio of 14 has an earnings yield closest to

7.14%

pro forma financial statements are best described as

a company's own preference for reporting

based on the relationship in the dividend valuation model, an increase in the dividend payout ratio most likely results in

a higher price-earnings ratio

spread duration is best described as

a measure of how a bond's price will likely change if the credit spread changes in the market

Qualified Opinion

a report issued when the auditor believes that the overall financial statements are fairly stated but that either the scope of the audit was limited or the financial data indicated a failure to follow GAAP

an issuers ability to secure liquid fund may be represented by all but which of the following

an altman z-score above 1.81

based on the porters five forces, a beer company that has a single supplier of hops, but distributes its products among retail clients has a threat based on

bargaining power of suppliers

economic profit is best described as the difference between revenues and costs, where costs include

both direct expenses and the cost of capital

the ability of the issuer to oay its obligations is best described as

capacity

which of the following is not considered one of the four Cs

capital

a financially healthy company will most likely have

cash flow from operations

cashflow from operations may differ from net income because of

changes in working capital

a low altman z-score is most indicative of a

company likely to enter bankruptcy

the CFAR ratio is best decribed as a comparison of three cash flow and

deft oblohation

migration risk is best described as the risk of the

downgrading of debt obligations credit rating

Pro forma earnings are best described as

earnings determined usung accounting principles other than GAAP

a clawback in the context of financial restatements refers to

executive compensation

mark-to-market accounting

exposed the value of the holding of the financial firms

net fre chas flow is best described as free cash flow after

financing costs nd taxes

an adverse opinion regarding a material weakness in internal controls is

generally viewed as a warning of financial or governance issues

an effective portfolio, according to Markowitz, is all but which of the following

greater risk fora given level of expected return

according to the CAPM, the higher the beta, the

higher the stocks expected return

which of the following has not been observed for the fama-french three-factor model

in general, firms with high book-market ratios have higher returns than firms with lower book-to-market ratios

which of the following statements is incorrect

in practice, the calculation of economic profit is determined based on GAAP

an increase cash flow to equal capital expenditures ratio is consistent with

increasing financial flexabilty

an increae in cash flow to capital expenditures ratio is consistent with

increasing finncial flexability

accourding to the molodovsky effect, in recessionary enviorments, the price-earnings ratios of cyclical companies are most likely

overstated

cash flow information

is most likely more reliable than earnings

Dilutive earnings per share will always be

less than or equal to basic earnings per share

which of the following uses factors drawn from a firms financial statements and market information

macroeconomic factor model

a stocks beta is the measure of the stocks

market risk

market value added is best described as the

market value of the firm, less invested capital

regarding growth rates in revenues and earnings, a high growth rate

may not be sustainable

key elements of a good performance measure includes all but which of the following

measure should focus on actual results instead of expected or predicted results

free cash flow to equity is cash from operations, less capital expenitiures, plus

net barrowings

the arbitrage pricing theory is a model in which

several factors may explain a stocks expected return

a cash waterfall is best described as a breakdown of free cash flows by

source

when calculating net operating profit after taxes, depreciation is

subtracted from operating income

during a recessionary economic environment, credit spreads

tend to increase

possible explanations for the role of the book value to market value in explaining stock returns include all but which of the following

the book value to market value ratio is proxy for financial statements

which of the following is not one of porters 5 forces

the borrowing power of regulators

which of the following is most likely considered a negative covenant

the company is not permitted to pay dividends until all interest obligations on debt are satisfied

which fo the following statements is not true

the fundamental beta allows for the potential of beta to change over time

which of the following best describes the MSCI fundamental factor model

the model includes only unsystematic factors

which of the following best describes default risk

the risk that the borrower will not satisfy the terms of the debt obligation

a stock of a compan that has a high book-market ratio is mot likely referred to as a

value stock

a cyclical company with a constant dividend growth rate stratgey most likely will have

variable dividend payouts