Question 1

Which of the following is a business tenet of Warren Buffett?

Accepted Answer

A)  Long term prospects. 
B)  Resistance to institutional imperative. 
C)  Creation of one dollar of market value for every dollar retained. 
D)  Purchase at discount to intrinsic value. 
E)  Product is not faddish 
A)  Long term prospects. 
B)  Resistance to institutional imperative. 
C)  Creation of one dollar of market value for every dollar retained. 
D)  Purchase at discount to intrinsic value. 
E)  Product is not faddish

Question 2

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 the sustainable growth rate for Rollerball Corporation.

Accepted Answer

A)  19.1% 
B)  22.7% 
C)  27.5% 
D)  52.5% 
E)  62.5% 
A)  19.1% 
B)  22.7% 
C)  27.5% 
D)  52.5% 
E)  62.5%

Question 3

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 Y based on the capital asset pricing model (CAPM)?

Accepted Answer

A)  11.5% 
B)  13.0% 
C)  13.6% 
D)  14.8% 
E)  15.5% 
A)  11.5% 
B)  13.0% 
C)  13.6% 
D)  14.8% 
E)  15.5%

Question 4

With a differentiation strategy,a firm seeks to identify itself as unique in its industry in an area that is important to buyers.

Accepted Answer

A) True 
 B)False

Question 5

Exhibit 14.1
Use the Information Below for the Following Problem(S)
(1) The firm's expected rate of growth of earning per share
(2) The amount of capital invested in growth investments
(3) The rate of return earned on the funds relative to the required rate of return
(4) The required rate of return on the security based on its systematic risk
(5) The firm's dividend payout ratio
(6) The time horizon when these growth investments will be available
-Refer to Exhibit 14.1.In the listing above,which three factors influence the earnings multiple for a stock?

Accepted Answer

A)  1, 4, and 5 
B)  1, 4, and 6 
C)  2, 4, and 6 
D)  2, 5, and 6 
E)  4, 5, and 6 
A)  1, 4, and 5 
B)  1, 4, and 6 
C)  2, 4, and 6 
D)  2, 5, and 6 
E)  4, 5, and 6

Question 6

A growth company is a firm that has the opportunities and ability to invest capital in projects that generate rates of return greater than the firm's cost of debt.

Accepted Answer

A) True 
 B)False

Question 7

Which of the following is not considered a relative valuation technique?

Accepted Answer

A)  Price-earnings ratio 
B)  Price/cash flow ratio 
C)  Price/book value ratio 
D)  Price/cost of goods sold ratio 
E)  Price/sales ratio 
A)  Price-earnings ratio 
B)  Price/cash flow ratio 
C)  Price/book value ratio 
D)  Price/cost of goods sold ratio 
E)  Price/sales ratio

Question 8

Exhibit 14.8
Use the Information Below for the Following Problem(S)
At the end of the year 2010 the CKL Corporation had operating free cash flow (OFCF) of $300,000 and shares outstanding of 100,000. Total debt is currently $10,000,000. The company projects the following annual growth rates in OFCF
 $$\begin{array} { c c } 
\text { Year } & \text { Grapth Rata } \
\hline 2011 & 25 \% \
2012 & 20 \% \
2013 & 15 \% \
2014 & 10 \% \
2015 & 12 \% \
2016 & 14 \% \
2017 & 16 \% \
2018 & 18 \%
\end{array}$$ 
From year 2019 onward growth in OFCF is expected to remain constant at 5% per year. The stock has a beta of 1.1 and the current market price is $80. Currently the yield on 10-year Treasury notes is 5% and the equity risk premium is 4%. The firm can raise debt at a pre-tax cost of 9%. The tax rate is 25%. The proportion of equity is 55% and the proportion of debt is 45%.
-Refer to Exhibit 14.8.Calculate the present value now (Year 2010)of OFCF during the period of declining growth (that is for years 2011 to 2014).

Accepted Answer

A)  $1,044,612 
B)  $1,554,823 
C)  $1,898,096 
D)  $1,327,547 
E)  $1,579,326 
A)  $1,044,612 
B)  $1,554,823 
C)  $1,898,096 
D)  $1,327,547 
E)  $1,579,326

Question 9

Which of the following is not a value added performance measure?

Accepted Answer

A)  Economic Value Added (EV
A)  
B)  Market Value Added (MV
A)  
C)  Franchise Factor 
D)  Company Value Added (CV
A)  
E)  None of the above (that is, all are value added performance measures) 
A)  Economic Value Added (EV
A)  
B)  Market Value Added (MV
A)  
C)  Franchise Factor 
D)  Company Value Added (CV
A)  
E)  None of the above (that is, all are value added performance measures)

Question 10

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:
 $$\begin{array} { c c } 
\text { Year } & \text { Grapth Rata } \
\hline 2011 & 10 \% \
2012 & 15 \% \
2013 & 20 \% \
2014 & 25 \% \
2015 & 20 \% \
2016 & 15 \% \
2017 & 10 \% \
2018 & 7 \%
\end{array}$$ 
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 present value now (Year 2010)of FCFE during the period of increasing growth (that is for years 2011 to 2014).

Accepted Answer

A)  $1,719,119 
B)  $1,715,784 
C)  $1,115,195 
D)  $1,434,903 
E)  $1,809,171 
A)  $1,719,119 
B)  $1,715,784 
C)  $1,115,195 
D)  $1,434,903 
E)  $1,809,171

Question 11

In the present value of operating free cash flow technique,the firm's operating free cash flow to the firm is discounted at the firm's weighted average cost of capital (WACC).

Accepted Answer

A) True 
 B)False

Question 12

Which of the following statements concerning global company analysis is false?

Accepted Answer

A)  Analysis of companies within industries should be extended to include foreign companies. 
B)  There is a problem in obtaining data that is required for a thorough company analysis of foreign companies. 
C)  Foreign companies' financial risk should be evaluated over time. 
D)  Differences in relative measures can be explained by the variations in accounting procedures among countries and investors attitudes within each country. 
E)  None of the above (that is, all statements are true) 
A)  Analysis of companies within industries should be extended to include foreign companies. 
B)  There is a problem in obtaining data that is required for a thorough company analysis of foreign companies. 
C)  Foreign companies' financial risk should be evaluated over time. 
D)  Differences in relative measures can be explained by the variations in accounting procedures among countries and investors attitudes within each country. 
E)  None of the above (that is, all statements are true)

Question 13

What is the implied growth duration of Freed Industries given the following:
$$\begin{array} { l c c } 
& \text { Susp Industrials } & \text { Frepd Industries } \
\text { P/ERatios } & 19 & 22 \
\text { Average Guoth (\%) } & 11.0 & 16.0 \
\text { Dividend Yield } & 0.33 & {  0.08  }
\end{array}$$

Accepted Answer

A)  1.8 years 
B)  1.3 years 
C)  5.0 years 
D)  4.5 years 
E)  3.5 years 
A)  1.8 years 
B)  1.3 years 
C)  5.0 years 
D)  4.5 years 
E)  3.5 years

Question 14

A growth company is one whose stock is undervalued by the market.

Accepted Answer

A) True 
 B)False

Which of the following is a business tenet of Warren Buffett?

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 Y based on the capital asset pricing model (CAPM)?

With a differentiation strategy,a firm seeks to identify itself as unique in its industry in an area that is important to buyers.

A growth company is a firm that has the opportunities and ability to invest capital in projects that generate rates of return greater than the firm's cost of debt.

Which of the following is not considered a relative valuation technique?

Which of the following is not a value added performance measure?

In the present value of operating free cash flow technique,the firm's operating free cash flow to the firm is discounted at the firm's weighted average cost of capital (WACC).

Which of the following statements concerning global company analysis is false?

What is the implied growth duration of Freed Industries given the following: Susp Industrials Frepd Industries P/ERatios 19 22 Average Guoth (\%) 11.0 16.0 Dividend Yield 0.33 0.08

A growth company is one whose stock is undervalued by the market.

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

Filters

Exam 14: Company Analysis and Stock Valuation

Which of the following is a business tenet of Warren Buffett?

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 Y based on the capital asset pricing model (CAPM)?

With a differentiation strategy,a firm seeks to identify itself as unique in its industry in an area that is important to buyers.

A growth company is a firm that has the opportunities and ability to invest capital in projects that generate rates of return greater than the firm's cost of debt.

Which of the following is not considered a relative valuation technique?

Which of the following is not a value added performance measure?

In the present value of operating free cash flow technique,the firm's operating free cash flow to the firm is discounted at the firm's weighted average cost of capital (WACC).

Which of the following statements concerning global company analysis is false?

What is the implied growth duration of Freed Industries given the following: Susp Industrials Frepd Industries P/ERatios 19 22 Average Guoth (\%) 11.0 16.0 Dividend Yield 0.33 0.08

A growth company is one whose stock is undervalued by the market.

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

Filters