SECURITIES REGULATION AND FINANCIAL VALUATION CONCEPT FINRA
WITH ANSWERS AND RATIONALES
Which of the following entities are subject to reporting requirements
on Form 8-K?
I. A registrant
II. An underwriter for the registrant
III. The parent company of the registrant
IV. Outside counsel of the registrant - answer-I. A registrant
III. The parent company of the registrant
- Triggering events for a Form 8-K apply to a registrant and all of its
subsidiaries.
1/
,- Fiduciaries to a registrant are not required to file an 8-K.
If a syndicate manager expects the closing of an offering to be
delayed, the firm is required to notify FINRA of this fact
A) No later than the scheduled closing date.
B) At least one day prior to the scheduled closing date.
C) No later than the actual closing date.
D) At least five days prior to the scheduled closing date - answer-A)
No later than the scheduled closing date.
- If a syndicate manager expects the closing of an offering to be
2/
,delayed; it is required to notify FINRA's Corporate Finance
Department immediately, but no later than the scheduled closing
date.
The present value of a company's future free cash flow (FCF) is $77
million through the third operating year, using the year-end
approach. Assuming that the cost of capital does not change, what
might be the present value of the same cash flow using a mid-year
convention?
A) $77 million
B) $56 million
3/
, C) $84 million
D) $71 million - answer-C) $84 million
- All else being equal, the use of a mid-year convention in discounted
cash flow analysis (DCF) will result in a higher valuation than year-
end discounting, because free cash flow (FCF) is assumed to be
received sooner.
- With less "time value of money" impact, the free cash flow will be
worth more.
- DCF converts all projected free cash flows to a present value, using
the weighted average cost of capital (WACC) as the discount rate
4/
WITH ANSWERS AND RATIONALES
Which of the following entities are subject to reporting requirements
on Form 8-K?
I. A registrant
II. An underwriter for the registrant
III. The parent company of the registrant
IV. Outside counsel of the registrant - answer-I. A registrant
III. The parent company of the registrant
- Triggering events for a Form 8-K apply to a registrant and all of its
subsidiaries.
1/
,- Fiduciaries to a registrant are not required to file an 8-K.
If a syndicate manager expects the closing of an offering to be
delayed, the firm is required to notify FINRA of this fact
A) No later than the scheduled closing date.
B) At least one day prior to the scheduled closing date.
C) No later than the actual closing date.
D) At least five days prior to the scheduled closing date - answer-A)
No later than the scheduled closing date.
- If a syndicate manager expects the closing of an offering to be
2/
,delayed; it is required to notify FINRA's Corporate Finance
Department immediately, but no later than the scheduled closing
date.
The present value of a company's future free cash flow (FCF) is $77
million through the third operating year, using the year-end
approach. Assuming that the cost of capital does not change, what
might be the present value of the same cash flow using a mid-year
convention?
A) $77 million
B) $56 million
3/
, C) $84 million
D) $71 million - answer-C) $84 million
- All else being equal, the use of a mid-year convention in discounted
cash flow analysis (DCF) will result in a higher valuation than year-
end discounting, because free cash flow (FCF) is assumed to be
received sooner.
- With less "time value of money" impact, the free cash flow will be
worth more.
- DCF converts all projected free cash flows to a present value, using
the weighted average cost of capital (WACC) as the discount rate
4/
