Question 1

Leverage measures the company's ability to meet obligations over the long term.

Accepted Answer

A) True 
 B)False

Question 2

Assuming that both the acquiring and target firms have fiscal years ending on December 31,if the target is acquired on December 1,2015,which of the following is the most accurate?

Accepted Answer

A) Revenues of the target would be consolidated from 2016 onward. 
B) Revenues of the target would be consolidated 100 percent for 2015. 
C) Revenues of the target would be consolidated post-acquisition-that is,one month of revenues of the target for 2015. 
D) No consolidation of revenues will happen. 
A) Revenues of the target would be consolidated from 2016 onward. 
B) Revenues of the target would be consolidated 100 percent for 2015. 
C) Revenues of the target would be consolidated post-acquisition-that is,one month of revenues of the target for 2015. 
D) No consolidation of revenues will happen.

Question 3

Given that ROIC,the interest rate on debt,and the debt-to-equity ratio are constant,how will increasing the tax rate affect ROE?

Accepted Answer

A) Decrease it. 
B) Not affect it. 
C) Increase it. 
D) There is no set relationship. 
A) Decrease it. 
B) Not affect it. 
C) Increase it. 
D) There is no set relationship.

Question 4

Use the following data to answer the question: What are the three interest coverage ratios based on pretax income and interest expense? $\begin{array}{|l|l|l|} 
\hline& 2015 & 2016 \
\hline \text { Current assets } & \$ 860 & \$ 896 \
\hline \text { Current liabilities } & 710 & 818 \
\hline \text { Debt in current liabilities } & 1 & 39 \
\hline \text { Lurkg-term debt } & 506 & 408 \
\hline \text { Total assets } & 2,293 & 2,307 \
\hline \text { Capilal experuditures } & 111 & 117 \
\hline \text { Change in deferred taxes } & 29 & -20 \
\hline \text { Sales } & 4,100 & 4,192 \\hline \text { Operating expenses } & 3,307 & 3,260 \
\hline \text { Rental expense } & 0 & 248 \
\hline \text { Gerieral expenses } & 562 & 528 \
\hline \text { Depreciation } & 139 & 136 \
\hline \text { Iriterest experise } & 39 & 30 \
\hline \text { Incuere taxes } & 5 & 8 \
\hline
\end{array}$

Accepted Answer

A) For 2016,interest coverage ratios based on EBIT,EBITDA,and EBITDAR are 5.47,5.47,and 1.48,respectively. 
B) For 2016,interest coverage ratios based on EBIT,EBITDA,and EBITDAR are 2.36,5.92,and 13.73,respectively. 
C) For 2016,interest coverage ratios based on EBIT,EBITDA,and EBITDAR are 0.93,5.47,and 1.48,respectively. 
D) For 2016,interest coverage ratios based on EBIT,EBITDA,and EBITDAR are 0.93,5.47,and 13.73,respectively. 
A) For 2016,interest coverage ratios based on EBIT,EBITDA,and EBITDAR are 5.47,5.47,and 1.48,respectively. 
B) For 2016,interest coverage ratios based on EBIT,EBITDA,and EBITDAR are 2.36,5.92,and 13.73,respectively. 
C) For 2016,interest coverage ratios based on EBIT,EBITDA,and EBITDAR are 0.93,5.47,and 1.48,respectively. 
D) For 2016,interest coverage ratios based on EBIT,EBITDA,and EBITDAR are 0.93,5.47,and 13.73,respectively.

Question 5

You are an equity analyst and have computed the following figures for two cement companies.The first,CementCo,has NOPLAT of $1,550 million,invested capital without goodwill of $15,000 million,and goodwill of $1,950 million.The second,CementExports,has NOPLAT of $1,750 million,invested capital without goodwill of $16,000 million,and no goodwill.If the cost of capital for both firms is 10 percent,what is the ROIC for each company? Which company is creating value in this year?

Accepted Answer

A) ROIC excluding goodwill is 10.3 percent for CementCo and 10.9 percent for CementExports;both companies are creating value. 
B) ROIC including goodwill is 9.1 percent for CementCo and 10.9 percent for CementExports;both companies are creating value. 
C) ROIC including goodwill is 9.1 percent for CementCo and 10.9 percent for CementExports;only CementExports is creating value. 
D) ROIC including goodwill is 9.1 percent for CementCo and 10.9 percent for CementExports;neither of the companies is creating value. 
A) ROIC excluding goodwill is 10.3 percent for CementCo and 10.9 percent for CementExports;both companies are creating value. 
B) ROIC including goodwill is 9.1 percent for CementCo and 10.9 percent for CementExports;both companies are creating value. 
C) ROIC including goodwill is 9.1 percent for CementCo and 10.9 percent for CementExports;only CementExports is creating value. 
D) ROIC including goodwill is 9.1 percent for CementCo and 10.9 percent for CementExports;neither of the companies is creating value.

Leverage measures the company's ability to meet obligations over the long term.

Assuming that both the acquiring and target firms have fiscal years ending on December 31,if the target is acquired on December 1,2015,which of the following is the most accurate?

Given that ROIC,the interest rate on debt,and the debt-to-equity ratio are constant,how will increasing the tax rate affect ROE?

Why Value Value

Fundamental Principles of Value Creation

Conservation of Value and the Role of Risk

The Alchemy of Stock Market Performance

The Stock Market Is Smarter Than You Think

Return on Invested Capital

Growth

Frameworks for Valuation

Reorganizing the Financial Statements

Forecasting Performance

Estimating Continuing Value

Estimating the Cost of Capital

Moving From Enterprise Value to Value Per Share

Analyzing the Results

Using Multiples

Valuation by Parts

Taxes

Non-operating Items, Provisions, and Reserves

Leases and Retirement Obligations

Alternative Ways to Measure Return on Capital

Inflation

Cross-Border Valuation

Case Study: Heineken

Corporate Portfolio Strategy

Performance Management

Mergers and Acquisitions

Divestitures

Capital Structure, Dividends, and Share Repurchases

Investor Communications

Emerging Markets

Valuing High-Growth Companies

Cyclical Companies

Banks

Flexibility

Filters

Exam 10: Analyzing Performance

Leverage measures the company's ability to meet obligations over the long term.

Assuming that both the acquiring and target firms have fiscal years ending on December 31,if the target is acquired on December 1,2015,which of the following is the most accurate?

Given that ROIC,the interest rate on debt,and the debt-to-equity ratio are constant,how will increasing the tax rate affect ROE?

Why Value Value

Fundamental Principles of Value Creation

Conservation of Value and the Role of Risk

The Alchemy of Stock Market Performance

The Stock Market Is Smarter Than You Think

Return on Invested Capital

Growth

Frameworks for Valuation

Reorganizing the Financial Statements

Forecasting Performance

Estimating Continuing Value

Estimating the Cost of Capital

Moving From Enterprise Value to Value Per Share

Analyzing the Results

Using Multiples

Valuation by Parts

Taxes

Non-operating Items, Provisions, and Reserves

Leases and Retirement Obligations

Alternative Ways to Measure Return on Capital

Inflation

Cross-Border Valuation

Case Study: Heineken

Corporate Portfolio Strategy

Performance Management

Mergers and Acquisitions

Divestitures

Capital Structure, Dividends, and Share Repurchases

Investor Communications

Emerging Markets

Valuing High-Growth Companies

Cyclical Companies

Banks

Flexibility

Filters