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Banking and Finance Quiz 3

Ques 1: What do you calculate when you use the corporate model?

(a) the return earned by an investor

(b) the discounted cash flow

(c) the terminal value of the company

(d) the purchase price of a company

Answer: Option(C): the terminal value of the company

Feedback

The corporate model focuses on calculating the value at the conclusion of the model.

Ques 2: What is a key goal of financial modeling?


(a) Adding detail to complex information.

(b) Adding detail to simple scenarios.

(c) Summarizing complex information in a detailed way.

(d) Summarizing complex information in an understandable way.
Answer: Option(D): Summarizing complex information in an understandable way.
Ques 3: What tip will you provide to a colleague working on a financial model in Excel?
(a) Add any necessary information as cell comments.

(b) Separate any three-statement models into different worksheets.

(c) Keep your assumptions in your model.

(d) Separate some data to other Excel workbooks.

Answer: Option(A): Add any necessary information as cell comments.

Feedback

This lets readers review the information while looking at the data in the cell.

Ques 4: What should be excluded from a financial model?


(a) details of a company's non-financial performance

(b) a focus on key cash flow drivers

(c) a simplified representation of reality

(d) assumptions and conclusions
Answer: Option(A): details of a company's non-financial performance

Feedback

A financial model should avoid details that are less relevant to arrive at a conclusion.

Ques 5: How can you access FRED data with Excel?


(a) with Excel online

(b) through an add-in

(c) direct from the cloud

(d) by subscription
Answer: Option(B): through an add-in
Ques 6: What is NOT a method of gathering data?
(a) Buying datasets.

(b) Cleaning datasets.

(c) Gathering datasets from free resources.

(d) Building datasets.

Answer: Option(B): Cleaning datasets.

Ques 7: Where does a bottom-up analysis start?

(a) with basic business drivers

(b) with the compound annual growth rate

(c) with revenue

(d) with the total addressable market

Answer: Option(A): with basic business drivers

Ques 8: You are projecting your assumptions over a five-year forward-looking period. Which item relies on the least subjective assumptions?

(a) cost of goods sold based on COGS being a percentage of revenue, times projected future revenue

(b) revenue projected as the current year revenue growth multiplied by the previous year's revenue

(c) income tax rates over the five-year forward-looking period as a rate, and not as a dollar amount of income taxes paid

(d) research and development expense using an average of the research and development over the past few years

Answer: Option(C): income tax rates over the five-year forward-looking period as a rate, and not as a dollar amount of income taxes paid

Feedback

Income tax rates are the safest assumption because tax rates remain constant, barring any legislative action.

Ques 9: What is one advantage of forecasting next year's revenue growth as a simple average of historical revenue growths?


(a) It accounts for market share assumptions in modeling.

(b) It is highly accurate in modeling.

(c) It includes the interest rate projection in modeling.

(d) It is defensible in modeling.
Answer: Option(D): It is defensible in modeling.
Ques 10: What variable is subtracted from revenues to determine gross profit?
(a) COGS

(b) EBITDA

(c) NOPAT

(d) SG&A

Answer: Option(A): COGS

Feedback

Yes, COGS (cost of goods) is subtracted from revenue to determine gross profit.

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