Exhibit 14.9 Use the Information Below for the Following Problem(S) The Rollerball Corporation's industry averages are as follows: Net Profit Margin = 7.5%; Total Asset Turnover = 2.2; Total Assets/Equity = 2.0 Rollerball Corporation has the following financial statements for year ending 12/31/2008. (000's omitted) $\begin{array}{lr} \text { Sales } & 5,450 \\ \text { Cost of Goods Sold } & \underline{3,250} \\ \text { Gross Profit } & 2,200 \\ \text { Depreciation } & 820 \\ \text { Operating Expenses } & 470 \\ \text { Administration Exp. } & \underline{115} \\ \text { Operating Profit } 795 & \\ \text { Interest Expense } & \underline{88}\\ \text { Profit Before Taxes } & 707\\ \text { Taxes } & \underline{247}\\ \text { Net Income } & 460\\ \text{Dividends} & 250 \end{array}$ $\begin{array}{lrlr} \text { Assets } & & {\text { Liabilities }} \\ \text { Cash } & 100 & \text { Notes Payable } & 850 \\ \text { Accounts Receivable } & 1,250 & \text { Accounts Payable } & \underline{1,550} \\ \text { Inventory } & \underline{1,125} & \text { Total Current Liab. } & 2,400 \\ \text { Total Current Assets } & 2,475 & \text { Long Term Debt } & 425 \\ \text { Net Fixed Assets } & \underline{1,450} & \text { Common Stock } & 400 \\ \text { Total Assets } & 3,925 & \text { Retained Earnings } & \underline{700} \\ & & \text { Total Liab. \& Earnings } & 3,925 \end{array}$ -Refer to Exhibit 14.9.Calculate Rollerball Corporation's Net Profit Margin.

A) 3.9% B) 8.4% C) 14.6% D) 40.4% E) 41.8% A) 3.9% B) 8.4% C) 14.6% D) 40.4% E) 41.8% B

Exhibit 14.11 Use the Information Below for the Following Problem(S) $\begin{array}{lcc} \text { Investment } & \text { Beta } & \text { Analyst's Estimated Return } \\ \hline \text { Stock } \mathrm{X} & 2.3 & 15.5 \% \\ \text { Stock } \mathrm{Y} & 1.2 & 13.6 \% \\ \text { Market Portfolio } & 1.0 & 11.5 \% \end{array}$ -Refer to Exhibit 14.11.Based on the analyst's estimated return and the stocks' betas the analyst should

A) Sell both Stock X and Stock Y B) Sell Stock X and Buy Stock Y C) Buy Stock X and Sell Stock Y D) Buy both Stock X and Stock Y E) None of the above A) Sell both Stock X and Stock Y B) Sell Stock X and Buy Stock Y C) Buy Stock X and Sell Stock Y D) Buy both Stock X and Stock Y E) None of the above

Exhibit 14.9 Use the Information Below for the Following Problem(S) The Rollerball Corporation's industry averages are as follows: Net Profit Margin = 7.5%; Total Asset Turnover = 2.2; Total Assets/Equity = 2.0 Rollerball Corporation has the following financial statements for year ending 12/31/2008. (000's omitted) $\begin{array}{lr} \text { Sales } & 5,450 \\ \text { Cost of Goods Sold } & \underline{3,250} \\ \text { Gross Profit } & 2,200 \\ \text { Depreciation } & 820 \\ \text { Operating Expenses } & 470 \\ \text { Administration Exp. } & \underline{115} \\ \text { Operating Profit } 795 & \\ \text { Interest Expense } & \underline{88}\\ \text { Profit Before Taxes } & 707\\ \text { Taxes } & \underline{247}\\ \text { Net Income } & 460\\ \text{Dividends} & 250 \end{array}$ $\begin{array}{lrlr} \text { Assets } & & {\text { Liabilities }} \\ \text { Cash } & 100 & \text { Notes Payable } & 850 \\ \text { Accounts Receivable } & 1,250 & \text { Accounts Payable } & \underline{1,550} \\ \text { Inventory } & \underline{1,125} & \text { Total Current Liab. } & 2,400 \\ \text { Total Current Assets } & 2,475 & \text { Long Term Debt } & 425 \\ \text { Net Fixed Assets } & \underline{1,450} & \text { Common Stock } & 400 \\ \text { Total Assets } & 3,925 & \text { Retained Earnings } & \underline{700} \\ & & \text { Total Liab. \& Earnings } & 3,925 \end{array}$ -Refer to Exhibit 14.9.Calculate Rollerball Corporation's Total Asset Turnover.

A) 0.72 B) 0.85 C) 1.39 D) 1.65 E) 2.31 A) 0.72 B) 0.85 C) 1.39 D) 1.65 E) 2.31

Exhibit 14.11 Use the Information Below for the Following Problem(S) $\begin{array}{lcc} \text { Investment } & \text { Beta } & \text { Analyst's Estimated Return } \\ \hline \text { Stock } \mathrm{X} & 2.3 & 15.5 \% \\ \text { Stock } \mathrm{Y} & 1.2 & 13.6 \% \\ \text { Market Portfolio } & 1.0 & 11.5 \% \end{array}$ -Refer to Exhibit 14.11.What is the required rate of return for Stock X based on the capital asset pricing model (CAPM)?

A) 15.5% B) 17.3% C) 21.3% D) 26.5% E) 30.5% A) 15.5% B) 17.3% C) 21.3% D) 26.5% E) 30.5%

Exhibit 14.6 Use the Information Below for the Following Problem(S) You are provided with the following information on Kayray Corporation. Your ultimate objective is to calculate the EVA for the firm. $\begin{array}{c} \begin{array}{lll} \text{LIFO reserve}\\ \text{Net plant, property, and equipment}\\ \text{Other assets}\\ \text{Goodwill}\\ \text{Accumulated Goodwill amortized}\\ \text{PV of Operating leases}\\ \text{Tax benefit from interest on expenses}\\ \text{Tax benefit from interest on leases}\\ \text{Taxes on non-operating income}\\ \text{Implied interest on op. lease}\\ \text{Increase in LIFO reserve}\\ \text{Goodwill amortization}\\ \text{Operating profit}\\ \text{Income tax expense}\\ \text{Net working capital}\\ \text{WACC}\\ \end{array} \begin{array}{lll} && \end{array} \begin{array}{lll} 60\\ 1325 \\ 325 \\ 325 \\ 65 \\ 140\\ 10\\ 5\\ 2\\ 9.5\\ 12\\ 15\\ 550\\ 215\\ 440\\ 0.12\\ \end{array} \end{array}$ -Refer to Exhibit 14.6.Calculate the capital for the firm.

A) 1725 B) 1953 C) 2524 D) 2385 E) 1987 A) 1725 B) 1953 C) 2524 D) 2385 E) 1987

What is the implied growth duration of Bowe Industries given the following: $\begin{array}{lcc} & \text { S\&P Industrials } & \text { Bowe Industries } \\ \text { P/E Ratios } & 15 & 25 \\ \text { Average Growth (\%) } & 5.0 & 15.0 \\ \text { Dividend Yield } & n 6 & n 2 \end{array}$

A) 3.2 years B) 6.6 years C) 8.6 years D) 9.7 years E) 10.6 years A) 3.2 years B) 6.6 years C) 8.6 years D) 9.7 years E) 10.6 years

Exam 14: Company Analysis and Stock Valuation

Exhibit 14.7 Use the Information Below for the Following Problem(S) At the end of the year 2010 the BRK Corporation had free cash flow to equity (FCFE) of $250,000 and shares outstanding of 200,000. The company projects the following annual growth rates in FCFE: Year Grapth Rata 2011 10\% 2012 15\% 2013 20\% 2014 25\% 2015 20\% 2016 15\% 2017 10\% 2018 7\% From year 2019 onward growth in FCFE is expected to remain constant at 5% per year. The stock has a beta of 1.3 and the current market price is $55. Currently the yield on 10-year Treasury notes is 5% and the equity risk premium is 4%. -Refer to Exhibit 14.7.Calculate the intrinsic value of the stock now (Year 2010).

Free

(Multiple Choice)

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(83)

Question 1

Correct Answer:

Verified

B

Exhibit 14.9 Use the Information Below for the Following Problem(S) The Rollerball Corporation's industry averages are as follows: Net Profit Margin = 7.5%; Total Asset Turnover = 2.2; Total Assets/Equity = 2.0 Rollerball Corporation has the following financial statements for year ending 12/31/2008. (000's omitted) Sales 5,450 Cost of Goods Sold Gross Profit 2,200 Depreciation 820 Operating Expenses 470 Administration Exp. Operating Profit 795 Interest Expense Profit Before Taxes 707 Taxes Net Income 460 Dividends 250 Assets Liabilities Cash 100 Notes Payable 850 Accounts Receivable 1,250 Accounts Payable Inventory Total Current Liab. 2,400 Total Current Assets 2,475 Long Term Debt 425 Net Fixed Assets Common Stock 400 Total Assets 3,925 Retained Earnings Total Liab. \& Earnings 3,925 -Refer to Exhibit 14.9.Calculate Rollerball Corporation's Net Profit Margin.

Free

(Multiple Choice)

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Question 2

Correct Answer:

Verified

B

An inconsistency between a stock's P/E ratio and growth rate can be attributed to all of the following,except

Free

(Multiple Choice)

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Question 3

Correct Answer:

Verified

E

A firm that follows a low cost leadership strategy

(Multiple Choice)

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Question 4

Speculative companies are firms where

(Multiple Choice)

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Question 5

A cyclical stock's rate of return is not expected to decline during an overall market decline.

(True/False)

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Question 6

A growth company can invest in projects that generate a return greater than the firm's

(Multiple Choice)

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Question 7

A negative EVA (Economic Value Added)for the year implies that the firm has not earned enough during the year to cover its total cost of capital and the value of the firm has declined.

(True/False)

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Question 8

A stock with low systematic risk is considered to be a defensive stock.

(True/False)

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Question 9

Exhibit 14.11 Use the Information Below for the Following Problem(S) Investment Beta Analyst's Estimated Return Stock 2.3 15.5\% Stock 1.2 13.6\% Market Portfolio 1.0 11.5\% -Refer to Exhibit 14.11.Based on the analyst's estimated return and the stocks' betas the analyst should

(Multiple Choice)

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Question 10

A growth company may exist for all of the following reasons except

(Multiple Choice)

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Question 11

Exhibit 14.9 Use the Information Below for the Following Problem(S) The Rollerball Corporation's industry averages are as follows: Net Profit Margin = 7.5%; Total Asset Turnover = 2.2; Total Assets/Equity = 2.0 Rollerball Corporation has the following financial statements for year ending 12/31/2008. (000's omitted) Sales 5,450 Cost of Goods Sold Gross Profit 2,200 Depreciation 820 Operating Expenses 470 Administration Exp. Operating Profit 795 Interest Expense Profit Before Taxes 707 Taxes Net Income 460 Dividends 250 Assets Liabilities Cash 100 Notes Payable 850 Accounts Receivable 1,250 Accounts Payable Inventory Total Current Liab. 2,400 Total Current Assets 2,475 Long Term Debt 425 Net Fixed Assets Common Stock 400 Total Assets 3,925 Retained Earnings Total Liab. \& Earnings 3,925 -Refer to Exhibit 14.9.Calculate Rollerball Corporation's Total Asset Turnover.

(Multiple Choice)

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Question 12

Studies that have examined the relationship between EVA and MVA have found

(Multiple Choice)

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(70)

Question 13

Exhibit 14.11 Use the Information Below for the Following Problem(S) Investment Beta Analyst's Estimated Return Stock 2.3 15.5\% Stock 1.2 13.6\% Market Portfolio 1.0 11.5\% -Refer to Exhibit 14.11.What is the required rate of return for Stock X based on the capital asset pricing model (CAPM)?

(Multiple Choice)

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Question 14

To benefit from cost leadership a firm must command prices near the industry average.

(True/False)

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Question 15

Which of the following factors does not indicate market liquidity?

(Multiple Choice)

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Question 16

Exhibit 14.6 Use the Information Below for the Following Problem(S) You are provided with the following information on Kayray Corporation. Your ultimate objective is to calculate the EVA for the firm. LIFO reserve Net plant, property, and equipment Other assets Goodwill Accumulated Goodwill amortized PV of Operating leases Tax benefit from interest on expenses Tax benefit from interest on leases Taxes on non-operating income Implied interest on op. lease Increase in LIFO reserve Goodwill amortization Operating profit Income tax expense Net working capital WACC 60 1325 325 325 65 140 10 5 2 9.5 12 15 550 215 440 0.12 -Refer to Exhibit 14.6.Calculate the capital for the firm.

(Multiple Choice)

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Question 17

What variables impact the Price/Sales ratio?

(Multiple Choice)

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Question 18

What is the implied growth duration of Bowe Industries given the following: S\&P Industrials Bowe Industries P/E Ratios 15 25 Average Growth (\%) 5.0 15.0 Dividend Yield n6 n2

(Multiple Choice)

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Question 19

Price-to-sales ratio is still considered the predominant firm valuation technique.

(True/False)

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Question 20

Exam 14: Company Analysis and Stock Valuation

An inconsistency between a stock's P/E ratio and growth rate can be attributed to all of the following,except

A firm that follows a low cost leadership strategy

Speculative companies are firms where

A cyclical stock's rate of return is not expected to decline during an overall market decline.

A growth company can invest in projects that generate a return greater than the firm's

A negative EVA (Economic Value Added)for the year implies that the firm has not earned enough during the year to cover its total cost of capital and the value of the firm has declined.

A stock with low systematic risk is considered to be a defensive stock.

Exhibit 14.11 Use the Information Below for the Following Problem(S) Investment Beta Analyst's Estimated Return Stock 2.3 15.5\% Stock 1.2 13.6\% Market Portfolio 1.0 11.5\% -Refer to Exhibit 14.11.Based on the analyst's estimated return and the stocks' betas the analyst should

A growth company may exist for all of the following reasons except

Studies that have examined the relationship between EVA and MVA have found

Exhibit 14.11 Use the Information Below for the Following Problem(S) Investment Beta Analyst's Estimated Return Stock 2.3 15.5\% Stock 1.2 13.6\% Market Portfolio 1.0 11.5\% -Refer to Exhibit 14.11.What is the required rate of return for Stock X based on the capital asset pricing model (CAPM)?

To benefit from cost leadership a firm must command prices near the industry average.

Which of the following factors does not indicate market liquidity?

What variables impact the Price/Sales ratio?

What is the implied growth duration of Bowe Industries given the following: S\&P Industrials Bowe Industries P/E Ratios 15 25 Average Growth (\%) 5.0 15.0 Dividend Yield n6 n2

Price-to-sales ratio is still considered the predominant firm valuation technique.

An Overview of the Investment Process

The Asset Allocation Decision

The Global Market Investment Decision

Securities Markets: Organization and Operation

Security-Market Indexes

Efficient Capital Markets

An Introduction to Portfolio Management

An Introduction to Asset Pricing Models

Multifactor Models of Risk and Return

Analysis of Financial Statements

Security Valuation Principles

Macroanalysis and Microvaluation of the Stock Market

Industry Analysis

Equity Portfolio Management Stragtegies

Technical Analysis

Bond Fundamentals

The Analysis and Valuation of Bonds

Bond Portfolio Management Strategies

An Introduction to Derivative Markets and Securities

Forward and Futures Contracts

Option Contracts

Swap Contracts,convertible Securities,and Other Embedded Derivatives

Professional Money Management, alternative Assets, and Industry Ethics

Evaluation of Portfolio Performance

Investment Return and Risk Analysis Questions

Investment and Retirement Plans

Calculating Covariance and Correlation Coefficient of Assets

Portfolio Variance and Stock Weight Calculations

Portfolio Optimization with Negative Correlation: Finding Minimum Variance and Weight Allocation

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