Review for Exam 3. Instructions: Please read carefully


 Ralf Ball
 3 years ago
 Views:
Transcription
1 Review for Exam 3 Instructions: Please read carefully The exam will have 25 multiple choice questions and 5 work problems. You are not responsible for any topics that are not covered in the lecture note slides (lecture 9, 10). Questions in the multiple choice section will be either concept or calculation questions. The calculation questions will be similar to those in the homework and review. However, the concept questions will be related to any topic we have covered in the class. The concept questions in the review are only some sample questions. You should NOT study only topics in the review. For the work problems, you need to solve the problems without knowing the possible answers. The questions will be similar to those in the homework and the review except that the possible solutions are not given. You can bring a formula sheet to the exam. Final Exams for Classes Meeting Tue. at 6:30pm o Tuesday, December 22 6:30 PM  9:30 PM
2 1. Assume the U.S. government was to decide to increase its budget deficit. This will cause to increase. A) interest rates B) the output of the economy C) both a and b D) neither a nor b 2. A big increase in government spending is an example of. A) a demand shock B) a supply shock C) an unsurprising shock D) none of the above 3. If you expect a larger interest rate increase than other market participants do, you would A) buy longterm bonds B) buy shortterm bonds C) buy longterm government bonds only D) buy shortterm government bonds only 4. Which of the following would not be considered a supply shock? A) a change in the price of imported oil B) frost damage to the orange crop C) a change in the level of education of the average worker D) an increase in the level of government spending 5. A trough is. A) a transition from an expansion in the business cycle to the start of a contraction B) a transition from a contraction in the business cycle to the start of an expansion C) only something used by farmers to feed pigs and is not a term in investments D) none of the above 6. The stage of the business cycle would be a good time to invest in firms engaged in natural resource extraction and processing such as minerals and petroleum. A) Peak B) Contraction C) Trough D) Expansion
3 7. the ratio of the number of people classified as unemployed to the total labor force. A) The capacity utilization rate is B) The participation rate is C) The unemployment rate is D) None of the above are 8. An analyst starts by examining the broad economic environment and then considers the implications of the outside environment on the industry in which the firm operates. Finally, the firm's position within the industry is examined. This is called analysis. A) bottomup B) outsideinside C) topdown D) upsidedown 9. is defined as the present value of all cash proceeds to the investor in the stock. A) dividend payout ratio B) intrinsic value C) market capitalization rate D) plowback ratio 10. are analysts who use information concerning current and prospective profitability of a company to assess its fair market value. A) credit analysts B) fundamental analysts C) systems analysts D) technical analysts 11. You wish to earn a return of 10% on each of two stocks, A and B. Each of the stocks is expected to pay a dividend of $4 in the upcoming year. The expected growth rate of dividends is 6% for stock A and 5% for stock B. Using the constant growth DDM, the intrinsic value of stock A. A) will be higher than the intrinsic value of stock B B) will be the same as the intrinsic value of stock B C) will be less than the intrinsic value of stock B D) more information is necessary to Answer this question
4 12. The market capitalization rate on the stock of Aberdeen Wholesale Company is 10%. Its expected ROE is 12% and its expected EPS is $5.00. If the firm's plowback ratio is 40%, its P/E ratio will be. A) 8.33 B) C) D) Rose Hill Trading Company is expected to have EPS in the upcoming year of $6.00. The expected ROE is 18.0%. An appropriate required return on the stock is 14%. If the firm has a plowback ratio of 60%, its growth rate of dividends should be. A) 2.5% B) 4.0% C) 8.4% D) 10.8% 14. Grott and Perrin, Inc. has expected earnings of $3 per share for next year. The firm's ROE is 20% and its earnings retention ratio is 70%. If the firm's market capitalization rate is 15%, what is the present value of its growth opportunities? A) $20 B) $70 C) $90 D) $ Cache Creek Manufacturing Company is expected to pay a dividend of $4.20 in the upcoming year. Dividends are expected to grow at the rate of 8% per year. The riskfree rate of return is 4% and the expected return on the market portfolio is 14%. Investors use the CAPM to compute the market capitalization rate on the stock, and the constant growth DDM to determine the intrinsic value of the stock. The stock is trading in the market today at $ Using the constant growth DDM and the CAPM, the beta of the stock is. A) 1.4 B) 0.9 C) 0.8 D) 0.5
5 16. Westsyde Tool Company is expected to pay a dividend of $2.00 in the upcoming year. The riskfree rate of return is 6% and the expected return on the market portfolio is 12%. Analysts expect the price of Westsyde Tool Company shares to be $29 a year from now. The beta of Westsyde Tool Company's stock is Using a oneperiod valuation model, the intrinsic value of Westsyde Tool Company stock today is. A) $24.29 B) $27.39 C) $31.13 D) $ Ace Frisbee Corporation produces a good that is very mature in their product life cycles. Ace Frisbee Corporation is expected to pay a dividend in year 1 of $3.00, a dividend in year 2 of $2.00, and a dividend in year 3 of $1.00. After year 3, dividends are expected to decline at the rate of 2% per year. An appropriate required return for the stock is 8%. Using the multistage DDM, the stock should be worth today. A) $13.06 B) $13.38 C) $18.25 D) $ A firm is expected to produce $3.00 per share in earnings next year. If the firm plans to plow back 30% of those earnings at a reinvestment rate of 25%, what will be the expected growth in dividends? A) 7.50% B) 15.0% C) 25.0% D) 30.0% 19. Next year's earnings are estimated to be $5.00. The company plans to reinvest 20% of its earnings at 15%. If the cost of equity is 9%, what is the present value of growth opportunities? A) $9.09 B) $10.10 C) $11.11 D) $12,21
6 20. Janet Ludlow s firm requires all its analysts to use a twostage DDM and the CAPM to value stocks. Using these measures, Ludlow has valued QuickBrush Company at $63 per share. She now must value SmileWhite Corporation. a. Calculate the required rate of return for SmileWhite using the information in the following table: (K) b. Ludlow estimates the following EPS and dividend growth rates for SmileWhite: (K) Estimate the intrinsic value of SmileWhite using the table above, and the twostage DDM. Dividends per share in 2007 were $ Which of the following balance sheet items is not considered an asset? A) inventory B) accounts receivable C) accrued taxes D) All of the above are assets 22. A firm has a ROE of 20% and a markettobook ratio of Its P/E ratio is. A) 8.40 B) C) D) 47.60
7 Use the following to answer questions 3241: The financial statements of Shuswap Lake Manufacturing Company are given below. Note: The common shares are trading in the stock market for $160 each. 23. The firm's current ratio for 2005 is. A) 0.90 B) 1.44 C) 1.89 D) 2.80
8 24. The firm's leverage ratio for 2004 is. A) 0.90 B) 1.56 C) 1.89 D) The firm's fixed asset turnover ratio for 2005 is. Please keep in mind that when a ratio involves both income statement and balance sheet numbers, the balance sheet numbers for the beginning and end of the year must be averaged. A) 3.39 B) 3.60 C) 6.00 D) The firm's asset turnover ratio for 2005 is. Please keep in mind that when a ratio involves both income statement and balance sheet numbers, the balance sheet numbers for the beginning and end of the year must be averaged. A) 0.90 B) 1.56 C) 1.92 D) The net income of the company is $970. Taxes payable decrease by $120, depreciation is $85, and fixed assets are sold for $90. If the firm's inventories also decline by $65, what is the total change in cash for the firm for all activities? A) Increase of $970 B) Increase of $1090 C) Decrease of $970 D) Decrease of $ A firm has an ROE of 3%, a debt/equity ratio of 0.5, a tax rate of 40%, and the interest rate on its debt is 10%. Its ROA is. A) 4% B) 6% C) 6.67% D) 7.50% 29. A firm purchases goods on credit worth $150. The same firm pays off $100 in old credit purchases. An investment is made via the purchase of a new facility and equity is issued in the amount of $300 to pay for the purchase. What is the change in net cash provided by operations? A) $50 increase B) $100 increase C) $150 increase D) $250 increase
9 30. What ratio will definitely increase when a firm increases its annual sales with no corresponding increase in assets? A) Asset turnover B) Current ratio C) Liquidity ratio D) Quick ratio 31. Alumbat Corporation has $800,000 of debt outstanding, and it pays an interest rate of 10 percent annually on its bank loan. Alumbat's annual sales are $3,200,000; its average tax rate is 40 percent; and its net profit margin on sales is 6 percent. If the company does not maintain a TIE ratio of at least 4 times, its bank will refuse to renew its loan, and bankruptcy will result. What is Alumbat's current TIE ratio? a. 2.4 b. 3.4 c. 3.6 d. 4.0 e. 5.0
10 32. If the economy is growing, firms with high operating leverage will experience. A. higher increases in profits than firms with low operating leverage. B. similar increases in profits as firms with low operating leverage. C. smaller increases in profits than firms with low operating leverage. D. no change in profits A firm in an industry that is very sensitive to the business cycle will likely have a stock beta. A. greater than 1.0 B. equal to 1.0 C. less than 1.0 but greater than 0.0 D. equal to or less than 0.0 E. There is no relationship between beta and sensitivity to the business cycle. 34. A firm in the early stages of the industry life cycle will likely have. A. high market penetration. B. high risk. C. rapid growth D. A and C E. B and C 35. Assume the U.S. government was to decide to decrease the budget deficit. This action will most likely cause to decrease A. interest rates B. government borrowing C. unemployment D. both A and B 36. are analysts who use information concerning current and prospective profitability of a firms to assess the firm's fair market value. A. Credit analysts B. Fundamental analysts C. Systems analysts D. Technical analysts E. Specialists 37. The is defined as the present value of all cash proceeds to the investor in the stock. A. dividend payout ratio B. intrinsic value C. market capitalization rate D. plowback ratio
11 38. You wish to earn a return of 13% on each of two stocks, X and Y. Stock X is expected to pay a dividend of $3 in the upcoming year while Stock Y is expected to pay a dividend of $4 in the upcoming year. The expected growth rate of dividends for both stocks is 7%. The intrinsic value of stock X. A. cannot be calculated without knowing the market rate of return B. will be greater than the intrinsic value of stock Y C. will be the same as the intrinsic value of stock Y D. will be less than the intrinsic value of stock Y is a correct answer. 39. You are considering acquiring a common stock that you would like to hold for one year. You expect to receive both $1.25 in dividends and $32 from the sale of the stock at the end of the year. The maximum price you would pay for the stock today is if you wanted to earn a 10% return. A. $30.23 B. $24.11 C. $26.52 D. $ Old Quartz Gold Mining Company is expected to pay a dividend of $8 in the coming year. Dividends are expected to decline at the rate of 2% per year. The riskfree rate of return is 6% and the expected return on the market portfolio is 14%. The stock of Old Quartz Gold Mining Company has a beta of The intrinsic value of the stock is. A. $80.00 B C. $ D. $ The market capitalization rate on the stock of Flexsteel Company is 12%. The expected ROE is 13% and the expected EPS are $3.60. If the firm's plowback ratio is 50%, the P/E ratio will be. A B C D
12 42. J.C. Penney Company is expected to pay a dividend in year 1 of $1.65, a dividend in year 2 of $1.97, and a dividend in year 3 of $2.54. After year 3, dividends are expected to grow at the rate of 8% per year. An appropriate required return for the stock is 11%. The stock should be worth today. A. $33.00 B. $40.67 C. $77.53 D. $ The present value of growth opportunities (PVGO) is equal to I) the difference between a stock's price and its nogrowth value per share. II) the stock's price III) zero if its return on equity equals the discount rate. IV) the net present value of favorable investment opportunities. A. I and IV B. II and IV C. I, III, and IV D. II, III, and IV E. III and IV 44. A firm has a (net profit / pretax profit ratio) of 0.625, a leverage ratio of 1.2, a (pretax profit / EBIT) of 0.9, an ROE of 17.82%, a current ratio of 8, and a return on sales ratio of 8%. The firm's asset turnover is. A. 0.3 B. 1.3 C. 2.3 D A firm has a (net profit/pretax profit) ratio of 0.6, a leverage ratio of 2, a (pretax profit/ebit) of 0.6, an asset turnover ratio of 2.5, a current ratio of 1.5, and a return on sales ratio of 4%. The firm's ROE is. A. 4.2% B. 5.2% C. 6.2% D. 7.2%
13 46. FOX Company has a ratio of (total debt/total assets) that is above the industry average, and a ratio of (long term debt/equity) that is below the industry average. These ratios suggest that the firm. A. utilizes assets effectively B. has too much equity in the capital structure C. has relatively high current liabilities D. has a relatively low dividend payout ratio The financial statements of Midwest Tours are given below.
14 47. Refer to the financial statements of Midwest Tours. The firm's current ratio for 2007 is. A B C D Refer to the financial statements of Midwest Tours. The firm's quick ratio for 2007 is. A B C D Refer to the financial statements of Midwest Tours. The firm's leverage ratio for 2007 is. A B C D E Refer to the financial statements of Midwest Tours. The firm's times interest earned ratio for 2007 is. A B C D Refer to the financial statements of Midwest Tours. The firm's average collection period for 2007 is. A B C D E
15 52. Refer to the financial statements of Midwest Tours. The firm's inventory turnover ratio for 2007 is. A B C D E Refer to the financial statements of Midwest Tours. The firm's fixed asset turnover ratio for 2007 is. A B C D Refer to the financial statements of Midwest Tours. The firm's asset turnover ratio for 2007 is. A B C D Refer to the financial statements of Midwest Tours. The firm's return on sales ratio for 2007 is percent. A B C D Refer to the financial statements of Midwest Tours. The firm's return on equity ratio for 2007 is. A % B % C % D % E. 16.9%
16 57. Refer to the financial statements of Midwest Tours. The firm's P/E ratio for 2007 is. A B C D Refer to the financial statements of Midwest Tours. The firm's market to book value for 2007 is. A B C D The Digital Electronic Quotation System (DEQS) Corporation pays no cash dividends currently and is not expected to for the next 5 years. Its latest EPS was $10, all of which was reinvested in the company. The firm's expected ROE for the next 5 years is 20% per year, and during this time, it is expected to continue to reinvest all of its earnings. Starting 6 years from now the firm's ROE on new investment is expected to fall to 15%, and the company is expected to start paying out 40% of its earning in cash dividends, which it will continue to do forever after. DEQS's market capitalization rate is 15% per year. a. what is your estimate of DEQS's intrinsic value per share? b. Assuming its current market price is equal to its intrinsic value, what do you expect to happen to its price over the next year? The year after? c. What effect would it have on your estimate of DEQS's intrinsic value if you expected DEQS to pay out only 20% of earnings stating in year 6?
17 Answers 1. Answer: C 2. Answer: A 3. Answer: B 4. Answer: D 5. Answer: B 6. Answer: A 7. Answer: C 8. Answer: C 9. Answer: B 10. Answer: B 11. Answer: A 12. Answer: B Difficulty: Medium P 1.40 = = E.10.12(.40) 13. Answer: D ( ) g = = 14. Answer: B 15. Answer: B 16. Answer: B 17. Answer: A V =.08 PVGO = V (.02) (.02) k = (.7).2(.7 ) β = = = = = = = 70 V 0 = Answer: A g = 0.30 x 0.25 = Answer: C (.926) (.857) + ( )(.794) =
18 g =.20 x.15 =.03. P = 4.0 / ( ) = PVGO = (5/.09) = a. k = r f + β [Ε(r M ) r f ] = 4.5% (14.5% 4.5%) = 16% b. Year Dividends 2007 $ $ = $ $ = $ $ = $ $ = $2.63 Present value of dividends paid in years 2008 to 2001: Year PV of Dividends 2008 $1.93/ = $ $2.16/ = $ $2.42/ = $1.55 Total: $4.82 D $2.63 = = k g P2010 = $37.57 PV (in 2007) of P 2010 = $37.57/( ) = $24.07 Intrinsic value of stock = $ $24.07 = $ Answer: C 22. Answer: B 23. Answer: B P E = 2.38 = ,150,000 CR = = , Answer: D 2,500,000 L = = , , Answer: A 5,000,000 FAT = = ,400, ,550, Answer: C
19 5,000,000 AT = 2,500, ,700, Answer: B cash flow = = 1090 = Answer: C 1.03 ROA = Answer: A 30. Answer: A (.10) = ANS: E TIE = EBIT/I, so find EBIT and I. Interest = $800, = $80,000. Net income = $3,200, = $192,000. Taxable income = EBT = $192,000/(1 T) = $192,000/0.6 = $320,000. EBIT = $320,000 + $80,000 = $400,000. TIE = $400,000/$80,000 = 5.0 times.
20 32. A As sales increase, firms with high operating leverage spread these fixed costs over more units and thus increase profits. 33. A Cyclical stocks are more volatile than the market in general, and thus have betas greater than E In the early stages of the industry life cycle, the firm is likely to be high in risk. 35. D decreasing the deficit lowers government borrowing, decreases the demand for funds and thus decreases the interest rates. 36. B Fundamentalists use all public information in an attempt to value stock (while hoping to identify undervalued securities). 37. B The cash flows from the stock discounted at the appropriate rate, based on the perceived riskiness of the stock, the market risk premium and the risk free rate, determine the intrinsic value of the stock. 38. D PV0 = D1/(kg); given k and g are equal, the stock with the larger dividend will have the higher value. 39. A.10 = (32  P ) / P;.10P = 32  P ; 1.10P = 33.25; P = B k = 6% + [0.25(14%  6%)] = 4%; P = 8 / [.04  (.02)] = $ C
21 g = 13% X 0.5 = 6.5%;.5/( ) = C Calculations are shown in the table below. P 3 = $2.54(1.08) / ( ) = $91.44; PV of P 3 = $91.44/(1.08) 3 = $ ; P O = $ $72.59 = $ C All are correct except II  the stock's price equals the nogrowth value per share plus the PVGO. 44. D 17.82% = X 0.9 X 8% X asset turnover X 1.2; asset turnover = D ROE = 0.6 X 0.6 X 4% X 2.5 X 2 = 7.2%. 46. C Total debt includes both current and long term debt; the above relationships could occur only if FOX Company has a higher than average level of current liabilities. 47. C $860,000/$660,000 = C ($860,000  $300,000)/$660,000 = C $3,040,000/$1,520,000 = C
22 $540,000 / 160,000 = A AR Turnover = $2,500,000 / [($500,000 + $450,000)) 2] = 5.26; ACP = 365 / 5.26 = days 52. D $1,260,000/[($300,000 + $270,000)) 2] = C $2,500,000/[($2,180,000 + $2,000,000)) 2] = C $2,500,000/[($3,040,000 + $2,770,000)) 2] = B $540,000/$2,500,000 = or 21.6%. 56. C $228,000/[($1,520,000 + $1,420,000)) 2] = A EPS = $228,000/30,000 = $7.60; $36/$7.60 = C $36/[$1,520,000/30,000] = Time: E t $ $ $ $ D t $0.000 $0.000 $0.000 $ b g 20.0% 20.0% 20.0% 9.0% a. D6 $ V5 = = = $ k g
23 V5 = (1 + k) $ = 1.15 V0 = 5 5 $98.97 b. The price should rise by 15% per year until year 6: because there is no dividend, the entire return must be in capital gains. c. The payout ratio would have no effect on intrinsic value because ROE = k.
Review for Exam 3. Instructions: Please read carefully
Review for Exam 3 Instructions: Please read carefully The exam will have 25 multiple choice questions and 5 work problems. Questions in the multiple choice section will be either concept or calculation
More informationFIN 3710. First (Practice) Midterm Exam 03/09/06
FIN 3710 Investment Analysis Zicklin School of Business Baruch College Spring 2006 FIN 3710 First (Practice) Midterm Exam 03/09/06 NAME: (Please print your name here) PLEDGE: (Sign your name here) Instructions:
More informationChapter 17: Financial Statement Analysis
FIN 301 Class Notes Chapter 17: Financial Statement Analysis INTRODUCTION Financial ratio: is a relationship between different accounting items that tells something about the firm s activities. Purpose
More informationEquity Valuation. Lecture Notes # 8. 3 Choice of the Appropriate Discount Rate 2. 4 Future Cash Flows: the Dividend Discount Model (DDM) 3
Equity Valuation Lecture Notes # 8 Contents About Valuation 2 2 PresentValues 2 3 Choice of the Appropriate Discount Rate 2 4 Future Cash Flows: the Dividend Discount Model (DDM) 3 5 The TwoStage DividendGrowth
More informationInvestment Analysis (FIN 383) Fall Homework 9
Investment Analysis (FIN 383) Fall 2009 Homework 9 Instructions: please read carefully You should show your work how to get the answer for each calculation question to get full credit The due date is Tue
More informationCHAPTER 8 STOCK VALUATION
CHAPTER 8 STOCK VALUATION Answers to Concepts Review and Critical Thinking Questions 5. The common stock probably has a higher price because the dividend can grow, whereas it is fixed on the preferred.
More informationCHAPTER 3 LONGTERM FINANCIAL PLANNING AND GROWTH
CHAPTER 3 LONGTERM FINANCIAL PLANNING AND GROWTH Answers to Concepts Review and Critical Thinking Questions 5. The sustainable growth rate is greater than 20 percent, because at a 20 percent growth rate
More informationPart V: Fundamental Analysis
Securities & Investments Analysis Last 2 Weeks: Part IV Bond Portfolio Management Risk Management + Primer on Derivatives Lecture #0: Part V Individual equity valuation Fundamental Analysis TopDown Analysis
More informationKEY EQUATIONS APPENDIX CHAPTER 2 CHAPTER 3
KEY EQUATIONS B CHAPTER 2 1. The balance sheet identity or equation: Assets Liabilities Shareholders equity [2.1] 2. The income statement equation: Revenues Expenses Income [2.2] 3.The cash flow identity:
More informationChapter 2 Financial Statement and Cash Flow Analysis
Chapter 2 Financial Statement and Cash Flow Analysis MULTIPLE CHOICE 1. Which of the following items can be found on an income statement? a. Accounts receivable b. Longterm debt c. Sales d. Inventory
More informationSolutions to Chapter 4. Measuring Corporate Performance
Solutions to Chapter 4 Measuring Corporate Performance 1. a. 7,018 Longterm debt ratio 0. 42 7,018 9,724 b. 4,794 7,018 6,178 Total debt ratio 0. 65 27,714 c. 2,566 Times interest earned 3. 75 685 d.
More informationChapter 3 Analyzing Financial Statement
Chapter 3 Analyzing Financial Statement Five major areas to analyze. (1) Liquidity Position (2) Management of Assets (3) Management of Debt (4) Company's Profitability (5) Market's View of Company (1)
More informationTIP If you do not understand something,
Valuing common stocks Application of the DCF approach TIP If you do not understand something, ask me! The plan of the lecture Review what we have accomplished in the last lecture Some terms about stocks
More informationTYPES OF FINANCIAL RATIOS
TYPES OF FINANCIAL RATIOS In the previous articles we discussed how to invest in the stock market and unit trusts. When investing in the stock market an investor should have a clear understanding about
More informationWhat Do ShortTerm Liquidity Ratios Measure? What Is Working Capital? How Is the Current Ratio Calculated? How Is the Quick Ratio Calculated?
What Do ShortTerm Liquidity Ratios Measure? What Is Working Capital? HOCK international  2004 1 HOCK international  2004 2 How Is the Current Ratio Calculated? How Is the Quick Ratio Calculated? HOCK
More informationFNCE 3010 (Durham). HW2 (Financial ratios)
FNCE 3010 (Durham). HW2 (Financial ratios) 1. What effect would the following actions have on a firms net working capital and current ratio (assume NWC is positive and current ratio is initially greater
More informationFINC 3630: Advanced Business Finance Additional Practice Problems
FINC 3630: Advanced Business Finance Additional Practice Problems Accounting For Financial Management 1. Calculate free cash flow for Home Depot for the fiscal yearended February 1, 2015 (the 2014 fiscal
More informationFSA Note: Summary of Financial Ratio Calculations
FSA Note: Summary of Financial Ratio Calculations This note contains a summary of the more common financial statement ratios. A few points should be noted: Calculations vary in practice; consistency and
More informationEC7092 Investment Management
November 6, 2011 Road Map Valuation models Intrinsic value and holding period returns Dividend discount models P/E ratios Macroeconomic analysis Industry analysis Readings Bodie, Kane and Marcus, Chapters
More informationChapter 8 Financial Statement Analysis
Chapter 8 Financial Statement Analysis rue/false Questions F 1. Balance sheet items are carried at original cost or market value at the discretion of the individual firm. F 2. A primary use of the sources
More informationKey Concepts and Skills Chapter 8 Stock Valuation
Key Concepts and Skills Chapter 8 Stock Valuation Konan Chan Financial Management, Spring 2016 Understand how stock prices depend on future dividends and dividend growth Be able to compute stock prices
More informationBond Valuation. What is a bond?
Lecture: III 1 What is a bond? Bond Valuation When a corporation wishes to borrow money from the public on a longterm basis, it usually does so by issuing or selling debt securities called bonds. A bond
More informationIntegrated Case. 425 D Leon Inc., Part II Financial Statement Analysis
Integrated Case 425 D Leon Inc., Part II Financial Statement Analysis Part I of this case, presented in Chapter 3, discussed the situation of D Leon Inc., a regional snack foods producer, after an expansion
More informationUnderstanding Financial Management: A Practical Guide Guideline Answers to the Concept Check Questions
Understanding Financial Management: A Practical Guide Guideline Answers to the Concept Check Questions Chapter 3 Interpreting Financial Ratios Concept Check 3.1 1. What are the different motivations that
More informationTotal shares at the end of ten years is 100*(1+5%) 10 =162.9.
FCS5510 Sample Homework Problems Unit04 CHAPTER 8 STOCK PROBLEMS 1. An investor buys 100 shares if a $40 stock that pays a annual cash dividend of $2 a share (a 5% dividend yield) and signs up for the
More informationCHAPTER 3 LONGTERM FINANCIAL PLANNING AND GROWTH
CHAPTER 3 LONGTERM FINANCIAL PLANNING AND GROWTH Answers to Concepts Review and Critical Thinking Questions 1. Time trend analysis gives a picture of changes in the company s financial situation over
More informationFinancial Ratio Cheatsheet MyAccountingCourse.com PDF
Financial Ratio Cheatsheet MyAccountingCourse.com PDF Table of contents Liquidity Ratios Solvency Ratios Efficiency Ratios Profitability Ratios Market Prospect Ratios Coverage Ratios CPA Exam Ratios to
More informationKey Concepts and Skills. Standardized Financial. Chapter Outline. Ratio Analysis. Categories of Financial Ratios 11. Chapter 3
Key Concepts and Skills Chapter 3 Working With Financial Statements Know how to standardize financial statements for comparison purposes Know how to compute and interpret important financial ratios Know
More informationCHAPTER 2 FINANCIAL STATEMENTS AND CASH FLOW
CHAPTER 2 FINANCIAL STATEMENTS AND CASH FLOW Solutions to Questions and Problems NOTE: All endofchapter problems were solved using a spreadsheet. Many problems require multiple steps. Due to space and
More information] (3.3) ] (1 + r)t (3.4)
Present value = future value after t periods (3.1) (1 + r) t PV of perpetuity = C = cash payment (3.2) r interest rate Present value of tyear annuity = C [ 1 1 ] (3.3) r r(1 + r) t Future value of annuity
More informationMBA Financial Management and Markets Exam 1 Spring 2009
MBA Financial Management and Markets Exam 1 Spring 2009 The following questions are designed to test your knowledge of the fundamental concepts of financial management structure [chapter 1], financial
More informationChapters 3 and 13 Financial Statement and Cash Flow Analysis
Chapters 3 and 13 Financial Statement and Cash Flow Analysis Balance Sheet Assets Cash Inventory Accounts Receivable Property Plant Equipment Total Assets Liabilities and Shareholder s Equity Accounts
More informationComputing Liquidity Ratios Current Ratio = CA / CL 708 / 540 = 1.31 times Quick Ratio = (CA Inventory) / CL (708 422) / 540 =.53 times Cash Ratio =
1 Computing Liquidity Ratios Current Ratio = CA / CL 708 / 540 = 1.31 times Quick Ratio = (CA Inventory) / CL (708 422) / 540 =.53 times Cash Ratio = Cash / CL 98 / 540 =.18 times 2 Computing Leverage
More informationFundamental analysis
Fundamental analysis 2 June 2016 CERN Finance Club c.laner@cern.ch Introduction Let s cover the two main types of investment analysis used in traditional investing Today: Fundamental analysis Next time:
More informationIncome Measurement and Profitability Analysis
PROFITABILITY ANALYSIS The following financial statements for Spencer Company will be used to demonstrate the calculation of the various ratios in profitability analysis. Spencer Company Comparative Balance
More informationFinance Master. Winter 2015/16. Jprof. Narly Dwarkasing University of Bonn, IFS
Finance Master Winter 2015/16 Jprof. Narly Dwarkasing University of Bonn, IFS Chapter 2 Outline 2.1 Firms Disclosure of Financial Information 2.2 The Balance Sheet 2.3 The Income Statement 2.4 The Statement
More informationEquity Analysis and Capital Structure. A New Venture s Perspective
Equity Analysis and Capital Structure A New Venture s Perspective 1 Venture s Capital Structure ASSETS Short term Assets Cash A/R Inventories Long term Assets Plant and Equipment Intellectual Property
More informationFinancial Statement and Cash Flow Analysis
Chapter 2 Financial Statement and Cash Flow Analysis Answers to Concept Review Questions 1. What role do the FASB and SEC play with regard to GAAP? The FASB is a nongovernmental, professional standards
More informationIf you ignore taxes in this problem and there is no debt outstanding: EPS = EBIT/shares outstanding = $14,000/2,500 = $5.60
Problems Relating to Capital Structure and Leverage 1. EBIT and Leverage Money Inc., has no debt outstanding and a total market value of $150,000. Earnings before interest and taxes [EBIT] are projected
More informationPrimary Market  Place where the sale of new stock first occurs. Initial Public Offering (IPO)  First offering of stock to the general public.
Stock Valuation Primary Market  Place where the sale of new stock first occurs. Initial Public Offering (IPO)  First offering of stock to the general public. Seasoned Issue  Sale of new shares by a
More informationPractice Questions for Midterm II
Finance 333 Investments Practice Questions for Midterm II Winter 2004 Professor Yan 1. The market portfolio has a beta of a. 0. *b. 1. c. 1. d. 0.5. By definition, the beta of the market portfolio is
More informationFinancial ratios can be classified according to the information they provide. The following types of ratios frequently are used:
Financial Ratios Financial ratios are useful indicators of a firm's performance and financial situation. Most ratios can be calculated from information provided by the financial statements. Financial ratios
More informationDo you need a Module Chapter to Read Lecture to View Problem Assignment Calculator for the Test? 1 1 1 None No. 2 2 2 Problems from Ch.
Syllabus Financial Statement Analysis 1 Purpose and Learning Objectives This is an introductory course in financial (accounting) statements and their analysis. It reviews the basic financial statements,
More informationSAMPLE FACT EXAM (You must score 70% to successfully clear FACT)
SAMPLE FACT EXAM (You must score 70% to successfully clear FACT) 1. What is the present value (PV) of $100,000 received five years from now, assuming the interest rate is 8% per year? a. $600,000.00 b.
More informationBusiness 2019 Finance I Lakehead University. Midterm Exam
Business 2019 Finance I Lakehead University Midterm Exam Philippe Grégoire Fall 2002 Time allowed: 2 hours. Instructions: Calculators are permitted. One 8.5 11 inches crib sheet is allowed. Verify that
More informationCHAPTER 2 INTRODUCTION TO CORPORATE FINANCE
CHAPTER 2 INTRODUCTION TO CORPORATE FINANCE Solutions to Questions and Problems NOTE: All end of chapter problems were solved using a spreadsheet. Many problems require multiple steps. Due to space and
More informationNWC = current assets  current liabilities = 2,100
Questions and Problems Chapters 2,3 pp4547 1. Building a balance sheet. Penguin Pucks, Inc., has current assets of $3,000, net fixed assets $6,000, current liabilities of $900, and longterm debt of $5,000.
More informationMBA Financial Management and Markets Spring 2011 Dr. A. Frank Thompson Due: February 28, 2011 Competency Exam 1 Directions: Please answer the
MBA Financial Management and Markets Spring 2011 Dr. A. Frank Thompson Due: February 28, 2011 Competency Exam 1 Directions: Please answer the following 33 questions designed to test your knowledge of the
More informationThe following information is available on Toy Inc. There are 100 shares outstanding, each selling for $25
The following information is available on Toy Inc. There are 100 shares outstanding, each selling for $25 Corporate tax 34.00% Interest rate 4.25% Retention ratio 65.00% Case A. Toy Inc. Zero growth in
More informationChapter 1 Financial Statement and Cash Flow Analysis
Chapter 1 Financial Statement and Cash Flow Analysis MULTIPLE CHOICE 1. Which of the following items can be found on an income statement? a. Accounts receivable b. Longterm debt c. Sales d. Inventory
More informationMBA 8230 Corporation Finance (Part II) Practice Final Exam #2
MBA 8230 Corporation Finance (Part II) Practice Final Exam #2 1. Which of the following input factors, if increased, would result in a decrease in the value of a call option? a. the volatility of the company's
More informationFinance 3130 Corporate Finiance Sample Final Exam Spring 2012
Finance 3130 Corporate Finiance Sample Final Exam Spring 2012 True/False Indicate whether the statement is true or falsewith A for true and B for false. 1. Interest paid by a corporation is a tax deduction
More informationFinancial ratio analysis
Financial ratio analysis A reading prepared by Pamela Peterson Drake O U T L I N E 1. Introduction 2. Liquidity ratios 3. Profitability ratios and activity ratios 4. Financial leverage ratios 5. Shareholder
More informationPractice Exam (Solutions)
Practice Exam (Solutions) June 6, 2008 Course: Finance for AEO Length: 2 hours Lecturer: Paul Sengmüller Students are expected to conduct themselves properly during examinations and to obey any instructions
More informationLiquidity analysis: Length of cash cycle
2. Liquidity analysis: Length of cash cycle Operating cycle of a merchandising firm: number of days it takes to sell inventory + number of days until the resulting receivables are converted to cash Acquisition
More informationChapter 13, ROIC and WACC
Chapter 13, ROIC and WACC Lakehead University Winter 2005 Role of the CFO The Chief Financial Officer (CFO) is involved in the following decisions: Management Decisions Financing Decisions Investment Decisions
More informationFeatures of Common Stock. The Stock Markets. Features of Preferred Stock. Valuation of Securities: Stocks
Valuation of Securities: Stocks Econ 422: Investment, Capital & Finance University of Washington Eric Zivot Fall 27 January 31, 27 Features of Common Stock Voting rights (Cumulative vs. Straight) Proxy
More informationChapter Financial Forecasting
Chapter Financial Forecasting PPT 42 Chapter 4  Outline What is Financial Forecasting? 3 Financial Statements for Forecasting Constructing Pro Forma Statements Basis for Sales Projections Steps in a
More informationChapter 8. Stock Valuation Process. Stock Valuation
Stock Valuation Process Chapter 8 Stock Valuation: Investors use risk and return concept to determine the worth of a security. In the valuation process: The intrinsic value of any investment equals the
More informationUnderstanding Financial Information for Bankruptcy Lawyers Understanding Financial Statements
Understanding Financial Information for Bankruptcy Lawyers Understanding Financial Statements In the United States, businesses generally present financial information in the form of financial statements
More informationCHAPTER 11 INTRODUCTION TO SECURITY VALUATION TRUE/FALSE QUESTIONS
1 CHAPTER 11 INTRODUCTION TO SECURITY VALUATION TRUE/FALSE QUESTIONS (f) 1 The three step valuation process consists of 1) analysis of alternative economies and markets, 2) analysis of alternative industries
More information1) In words, an equity multiplier of 2 means that for every $1:
Questions in [New Questions] 1) In words, an equity multiplier of 2 means that for every $1: [A] of debt, a firm has $2 in equity. [B] in equity, a firm has $2 in debt. [C] in assets, a firm has $2 in
More informationMGT201 Solved MCQs(500) By
MGT201 Solved MCQs(500) By http://www.vustudents.net Why companies invest in projects with negative NPV? Because there is hidden value in each project Because there may be chance of rapid growth Because
More informationFNCE 301, Financial Management H Guy Williams, 2006
Stock Valuation Stock characteristics Stocks are the other major traded security (stocks & bonds). Options are another traded security but not as big as these two.  Ownership Stockholders are the owner
More informationSOLUTIONS. Practice questions. Multiple Choice
Practice questions Multiple Choice 1. XYZ has $25,000 of debt outstanding and a book value of equity of $25,000. The company has 10,000 shares outstanding and a stock price of $10. If the unlevered beta
More informationOften stock is split to lower the price per share so it is more accessible to investors. The stock split is not taxable.
Reading: Chapter 8 Chapter 8. Stock: Introduction 1. Rights of stockholders 2. Cash dividends 3. Stock dividends 4. The stock split 5. Stock repurchases and liquidations 6. Preferred stock 7. Analysis
More informationThe Dividend Discount Model
The Dividend Discount Model Aswath Damodaran Aswath Damodaran 1 General Information The risk premium that I will be using in the 1999 and 2000 valuations for mature equity markets is 4%. This is the average
More informationSample Exam Questions and Answers
1 Sample Exam Questions and Answers 1. Which of the following statements is most correct? a. Proprietorship is generally not easily and inexpensively formed. b. Partnership has limited liability and limited
More informationChapter 9 Solutions to Problems
Chapter 9 Solutions to Problems 1. a. Cash and cash equivalents are cash in hand and in banks, plus money market securities with maturities of 90 days or less. Accounts receivable are claims on customers
More informationJohn A. Jaeger, CCE Manager Credit & Accounts Receivable Follett Higher Education Group. Extend Credit Management Financial Analyst Investor
John A. Jaeger, CCE Manager Credit & Accounts Receivable Follett Higher Education Group Extend Credit Management Financial Analyst Investor Establish the Objectives Study the Industry and Economic Climate
More information12. What is the Internal Rate of Return for the project? a. 18.52 percent d. 21.79 percent b. 16.95 percent e. 15.55 percent c. 20.
Business Finance Name Examination Four Spring 2005 version 4 Select the best answer for each of the following questions. Mark your selection on the examination and on your scantron. You may also record
More informationCorporate Finance: Final Exam
Corporate Finance: Final Exam Answer all questions and show necessary work. Please be brief. This is an open books, open notes exam. For partial credit, when discounting, please show the discount rate
More informationUnit 01. 1. Return computation with cash purchase vs. margin purchase
FCS 5510 Formula Sheet *Note: The formulas I expect you to know are colored in Red. They are either more conceptually based, or are more commonly used than the others. You need to have a passing familiarity
More informationNIKE Case Study Solutions
NIKE Case Study Solutions Professor Corwin This case study includes several problems related to the valuation of Nike. We will work through these problems throughout the course to demonstrate some of the
More informationFinancial Analysis Project. Apple Inc.
MBA 606, Managerial Finance Spring 2008 Pfeiffer/Triangle Financial Analysis Project Apple Inc. Prepared by: Radoslav Petrov Course Instructor: Dr. Rosemary E. Minyard Submission Date: 5 May 2008 Petrov,
More informationDiscounted Cash Flow Valuation: Basics
Discounted Cash Flow Valuation: Basics Aswath Damodaran Aswath Damodaran 1 Discounted Cashflow Valuation: Basis for Approach Value = t=n CF t t =1(1+r) t where CF t is the cash flow in period t, r is the
More informationFinance 3130 Sample Exam 1B Spring 2012
Finance 3130 Sample Exam 1B Spring 2012 True/False Indicate whether the statement is true or false. 1. A firm s income statement provides information as of a point in time, and represents how management
More information9901_1. A. 74.19 days B. 151.21 days C. 138.46 days D. 121.07 days E. 84.76 days
1. A stakeholder is: 9901_1 Student: A. a creditor to whom a firm currently owes money. B. any person who has voting rights based on stock ownership of a corporation. C. any person or entity other than
More informationAchievement of MarketFriendly Initiatives and Results Program (AMIR 2.0 Program) Funded by U.S. Agency for International Development
Achievement of MarketFriendly Initiatives and Results Program (AMIR 2.0 Program) Funded by U.S. Agency for International Development Equity Analysis, Portfolio Management, and Real Estate Practice Quizzes
More information1.1 Role and Responsibilities of Financial Managers
1 Financial Analysis 1.1 Role and Responsibilities of Financial Managers (1) Planning and Forecasting set up financial plans for their organisations in order to shape the company s future position (2)
More informationFinancial Formulas. 5/2000 Chapter 3 Financial Formulas i
Financial Formulas 3 Financial Formulas i In this chapter 1 Formulas Used in Financial Calculations 1 Statements of Changes in Financial Position (Total $) 1 Cash Flow ($ millions) 1 Statements of Changes
More informationFundamental Analysis Ratios
Fundamental Analysis Ratios Fundamental analysis ratios are used to both measure the performance of a company relative to other companies in the same market sector and to value a company. There are three
More informationFinancial Statement Ratio Analysis
Management Accounting 319 Financial Statement Ratio Analysis Financial statements as prepared by the accountant are documents containing much valuable information. Some of the information requires little
More informationHHIF Lecture Series: Financial Statement Analysis
HHIF Lecture Series: Financial Statement Analysis Alexander Remorov Based on the Materials by Daanish Afzal University of Toronto November 5, 2010 Alexander Remorov, Daanish Afzal (University of Toronto)
More informationVol. 2, Chapter 15 Ratio Analysis
Vol. 2, Chapter 15 Ratio Analysis Problem 1: Solution Transaction Total CurrentWorking Current No. Assets Capital Ratio 1 0 0 0 2 + + + 3 0 0 0 4 0   50 + 6    7 0 0 0 8 0 0 0 9    100 + Problem
More informationRatio Analysis 0.75. Fixed Assets Fixed Assets + Net Working Capital =0.75 Fixed Assets
Ratio Analysis CA Past Years Exam Answer Answer to Q.1: (Nov, 009) Fixed assets ` 18,00,000 Proprietor s funds ` 4,00,000 Note: 1 Ratio of fixed assets to proprietor s funds 0.75 Properietors Fund 0.75
More informationCost of Capital and Project Valuation
Cost of Capital and Project Valuation 1 Background Firm organization There are four types: sole proprietorships partnerships limited liability companies corporations Each organizational form has different
More informationSTUDENT CAN HAVE ONE LETTER SIZE FORMULA SHEET PREPARED BY STUDENT HIM/HERSELF. FINANCIAL CALCULATOR/TI83 OR THEIR EQUIVALENCES ARE ALLOWED.
Test IIIFINN3120090 Fall 2009 (2.5 PTS PER QUESTION. MAX 100 PTS) Type A Name ID PRINT YOUR NAME AND ID ON THE TEST, ANSWER SHEET AND FORMULA SHEET. TURN IN THE TEST, OPSCAN ANSWER SHEET AND FORMULA
More informationFINANCIAL ACCOUNTING TOPIC: FINANCIAL ANALYSIS
SYLLABUS Compulsory part Basic ratio analysis 1. State the general functions of accounting ratios. 2. Calculate and interpret the following ratios: a. working capital/current ratio, quick/liquid/acid test
More informationUnderstanding A Firm s Financial Statements
CHAPTER OUTLINE Spotlight: J&S Construction Company (http://www.jsconstruction.com) 1 The Lemonade Kids Financial statement (accounting statements) reports of a firm s financial performance and resources,
More informationPortfolio Management FMI Skema Paris campus Contrôle continu 2 2 April 2014 O. Williams
Portfolio Management FMI Skema Paris campus Contrôle continu 2 2 April 2014 O. Williams 1. The comparisons with which ratios should be made include the following, except: a. The firm's own past performance
More informationChapter3 Solutions to Problems
Chapter3 Solutions to Problems P31. P32. Reviewing basic financial statements LG 1; Basic Income statement: In this oneyear summary of the firm s operations, Technica, Inc. showed a net profit for
More informationHomework Solutions  Lecture 2
Homework Solutions  Lecture 2 1. The value of the S&P 500 index is 1286.12 and the treasury rate is 3.43%. In a typical year, stock repurchases increase the average payout ratio on S&P 500 stocks to over
More informationCorporate Finance: Final Exam
Corporate Finance: Final Exam Answer all questions and show necessary work. Please be brief. This is an open books, open notes exam. 1. DayTop Inns is a publicly traded company, with 10 million shares
More informationCHAPTER 13. Financial Analysis: The Big Picture
CHAPTER 13 Financial Analysis: The Big Picture Discuss the Need for comparative analysis and identify the tools of financial statement analysis Throughout the book we will rely on three types of comparisons
More informationRatio Analysis CBDC, NB. Presented by ACSBE. February, 2008. Copyright 2007 ACSBE. All Rights Reserved.
Ratio Analysis CBDC, NB February, 2008 Presented by ACSBE Financial Analysis What is Financial Analysis? What Can Financial Ratios Tell? 7 Categories of Financial Ratios Significance of Using Ratios Industry
More informationFinal Exam MØA 155 Financial Economics Fall 2009 Permitted Material: Calculator
University of Stavanger (UiS) Stavanger Masters Program Final Exam MØA 155 Financial Economics Fall 2009 Permitted Material: Calculator The number in brackets is the weight for each problem. The weights
More informationFORMULA SHEET [3.2] 63
FORMULA SHEET Assets = Liabilities + Shareholders equity [2.1] 26 Revenues  Expenses = Income [2.2] 30 Cash flow from assets = Cash flow to bondholders + Cash flow to shareholders [2.3] 32 Current ratio
More informationACCOUNTING III Cash Flow Statement & Linking the 3 Financial Statements. Fall 2015 Comp Week 5
ACCOUNTING III Cash Flow Statement & Linking the 3 Financial Statements Fall 2015 Comp Week 5 CODE: CA$H Administrative Stuff Send an email to trentnelson@college.harvard.edu if you have not been added
More informationContribution 787 1,368 1,813 983. Taxable cash flow 682 1,253 1,688 858 Tax liabilities (205) (376) (506) (257)
Answers Fundamentals Level Skills Module, Paper F9 Financial Management June 2012 Answers 1 (a) Calculation of net present value (NPV) As nominal aftertax cash flows are to be discounted, the nominal
More information