Portfolio Management FMI Skema Paris campus Contrôle continu 2 2 April 2014 O. Williams

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1 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 b. The firm's major competitor within the industry c. The firm's suppliers and customers d. The firm's industry or industries e. The aggregate economy 2. A common-size balance sheet expresses all balance sheet items a. As a percentage of Current Assets b. As a percentage of Fixed Assets c. As a percentage of Total Assets d. As a percentage of Net Income e. As a percentage of Sales 3. Financial risk is the additional uncertainty of returns to equity holders due to. a. The firm's use of fixed financial obligations b. The firm's level of fixed productions costs c. Business risk d. Interest rate volatility Refer to BMC Corporation s financial statements below to answer questions What was BMC'S interest coverage for 2004? a b c d e What was the financial leverage multiplier used by the BMC? a b c d e What is BMC'S operating profit margin? a b c d e

2 BMC CORPORATION INCOME STATEMENT FISCAL YEAR ENDING 12/31/2004 (DOLLARS IN THOUSANDS) Net Sales $1025 Cost of Goods Sold 682 Gross Profit Margin 343 Depreciation 31 Operating Expense 103 Administrative Expense 127 Operating Profit 82 Interest 27 Profit Before Tax 55 Taxes 17 Net Income $ 38 BMC CORPORATION BALANCE SHEET FISCAL YEAR ENDING 12/31/2004 (DOLLARS IN THOUSANDS) Assets Liabilities Cash $ 61 Notes payable $ 223 Accts rec 286 Accounts payable 152 Inventory 354 Accruals 32 Ttl cur assts 701 Total current liabilities 407 Net fixed assets 802 Long term debt 306 Common stock ($1.50 par) 102 Paid in surplus 226 Retained earnings 462 Total liabilities and Total assets $1503 Stockholders' equity $ Given the following information, calculate Maxi firm s ROE: Maxi Firm ratios: Operating profit margin = Current ratio = 2.5 Total asset turnover = 1.92 Interest burden = Financial leverage multiplier = 2.15 Maxi Firm s Tax rate: 0.35 a b c d e

3 8. Davenport Corporation's last dividend was $2.70 and the directors expect to maintain the historic 3 percent annual rate of growth. You plan to purchase the stock today because you feel that the growth rate will increase to 5 percent for the next three years and the stock will then reach $25 per share a. $16.25 b. $22.16 c. $25.78 d. $28.95 e. $ Fast Grow Corporation is expecting dividends to grow at a 22% rate for the next three years. The corporation just paid a $2 dividend and the next dividend will be paid one year from now. After three years of rapid growth dividends are expected to grow at a constant rate of 8% forever. If the required return is 10%, what is the value of Fast Grow Corporation common stock today? a. $ b. $ c. $ d. $ e. $ A stock possesses a high probability of low or negative rates of return and a low probability of normal or high rates of return. a. Growth b. Defensive c. Cyclical d. Speculative e. Value 11. In Berkshire Hathoway annual reports Warren Buffet highlights business tenets that he believes are important. Which of the following is not a business tenet of Warren Buffet? a. Is the business unique and technologically advanced? b. Does the business have a consistent operating history? c. Does the business have favorable long-term prospects? d. Is the business simple and understandable? 12. Market Value-Added is a measure of performance while Economic Value-Added is a measure of. a. External / Internal b. Competitive / Opportunity cost c. Economic / Accounting d. Internal / External e. Accounting / Economic 13. Cyclical companies are firms where a. Sales, earnings and cash flows are extremely uncertain and not necessarily related to the economy b. Sales, earnings and cash flows are likely to withstand changes caused by the economic environment c. Sales, earnings and cash flows are heavily influenced by aggregate business activity d. Sales, earnings and cash flows are growing exponentially

4 14. What variables impact the Price/Sales ratio? a. Sales growth rate, volatility of sales growth, profit margin b. Earnings growth rate, volatility of sales growth, profit margin c. Earnings growth rate, volatility of sales growth, operating margin d. Sales growth rate, volatility of sales growth, volatility of operating margin 15. What is the implied growth duration of Bowe Industries given the following: S&P Industrials Bowe Industries P/E Ratios Average Growth (%) Dividend Yield a. 3.2 years b. 5.6 years c. 8.2 years d. 9.7 years e years 16. The Big Hooters Company has FCFE of $800. FCFE is expected to grow by 7% next year. The cost of capital is 10% and the level of debt is $4000. The number of shares outstanding is 700. Calculate the firm's share price. a. $35.05 b. $57.30 c. $60.88 d. $65.45 e. $78.46 Grunger Corporation DPS $2.45 Total Asset Turnover 3.80 Net Profit Margin 6.50% EPS $3.50 Total Assets/Equity What is Grunger Corporation's expected sustainable growth rate? a. 11.9% b. 15.6% c. 18.9% d. 20.1% 18. An examination of the relationship between stock prices and the economy has shown that the relationship is a. Weak, and that stock prices turn after the economy does b. Nonexistent c. Strong, and that stock prices turn after the economy does d. Strong, and that stock prices turn before the economy does. e. Weak, and that stock prices turn before the economy does

5 19. The dividend payout ratio for the aggregate market is 55 percent, the required rate of return is 15 percent, and the expected growth rate for dividends is 7 percent. Compute the current earnings multiple. a b c d The index of leading indicators includes all of the following, except: a. M2 money supply b. S & P 500 index c. Manufacturing new orders d. Building permits e. Changes in the consumer price index