Answer the following questions and please provide explanations. 1. An analyst wh

Question

Answer the following questions and please provide explanations.

1. An analyst who is forecasting a company’s future Net Income and Cash Flow is least likely to assume a constant relationship between the company’s sales and its:

A. Accounts Receivable

B. Cost of Goods Sold

C. Inventory

D. Interest Expense

E. Selling, General and Administrative Expense

2. Sensitivity analysis is based on:

A. Varying a single variable and measuring the resulting change in the NPV of a project

B. Applying different discount rates to a project’s cash flows and measuring the effect on NPV

C. Expanding and contracting the number of years for a project to determine its optimal length

D. The best case, worst case, and most likely scenarios

E. Various states of the economy and the probability of each state occurring

3. The difference between a firm’s future cash flows if it accepts a project and the firm’s future cash flows if it does not accept the project is referred to as the project’s:

A. Sustainable cash flows

B. Internal cash flows

C. Sensitivity cash flows

D. Incremental cash flows

E. Financing cash flows

4. A firm paid $8 million in lease payments in 2016 and expensed these lease payments in 2016. If the firm had instead elected to capitalize these lease payment as an intangible asset and amortize the cost over 10 years, what effect would this decision have on their 2016 Net Income and Debt/Assets ratio?

A. Net Income and Debt/Assets would both increase

B. Net Income and Debt/Assets would both decrease

C. Net Income would increase and Debt/Assets would decrease

D. Net Income would decrease and Debt/Assets would increase

E. From this information the impact on Net Income and Debt/Assets cannot be determined.

5. What is a loan covenant? Provide two examples.

6. Name three ways management may try to increase revenue which are not necessarily in the best long-term interests of the firm.

7. Provide three examples of how firms have utilized unethical or illegal methods to increase profits by manipulating expenses.

8. Why would a firm “stuff” the channel? How did Ceres Gardening do it unintentionally?

Explanation / Answer

2. Sensitivity analysis is based on varying a single variable and measuring the resulting change in the NPV of a project. A sensitivity analysis is a technique used to determine how different values of an independent variable impact a particular dependent variable under a given set of assumptions. This technique is used within specific boundaries that depend on one or more input variables, such as the effect that changes in interest rates have on bond prices.

Please post the other questions separately. Thanks.

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