Exam 9: Company Analysis and Stock Valuation

What is the implied growth duration of Freed Industries given the following: S\&P/TSX Industrials Freed Industries P/E Ratios 19 22 Average Growth (\%) 11.0 16.0 Dividend Yield .033 08

Which of the following statements concerning SWOT analysis is false?

Exhibit 9-9 USE THE FOLLOWING INFORMATION FOR THE NEXT 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 12/31/2009. (000s 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 Dividende 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 9-9. Calculate Rollerball Corporation's Net Profit Margin.

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

An undervalued stock is a growth stock.

You are provided with the following information about Javier Corporation. Sales for the year 2009 were $500,000, the Net Profit Margin (NPM) was 15%. Analysts project sales to grow by 12% next year (that is 2010). However, because of more competition, the NPM is expected to decline by 10% for the year 2009. The expected P/E multiple for the year 2010 is 22. The total number of shares outstanding is 20,000. Use the earnings multiplier model to calculate the expected price for Javier Corporation in the year 2010.

Exhibit 9-4 USE THE FOLLOWING INFORMATION FOR THE NEXT PROBLEM(S) The Valentine Company currently has a 14% annual growth rate while the market average is 4%. The market multiple is 15. -Refer to Exhibit 9-4. Determine the justified P/E ratio for the Valentine Company assuming Valentine can maintain its superior growth rate for the next 10 years.

The price/cash flow ratio has grown in prominence and use for valuing firms because many analysts contend that a firm's cash flow is less subject to manipulation than the firm's earnings per share.

Defensive companies are firms where

The Pekay Company has FCFE of $800. FCFE is expected to grow by 7% next year. The cost of capital is 7% and the level of debt is $4000. The number of shares outstanding is 700. Calculate the firm's share price.

A firm that follows a defensive competitive strategy could

Based on the annual reports of Shoppers it has pursued both a low-cost strategy and a differentiation strategy for different business segments.

The best known measure of relative value for common stock is the P/E ratio.

Assuming that you expected the stock price in the prior question to increase to $42 during the investment period, your expected rate of return and decision would be:

In Berkshire Hathoway annual reports Warren Buffet highlights business tenants that he believes are important. Which of the following is not a business tenant of Warren Buffet?

The expected rate of return on Rooter Industries is 1.5 times the 16% expected rate of return from the market. What is Research's beta if the risk free rate is 8%?

A firm's competitive strategy can be either defensive or offensive.

Exhibit 9-2 USE THE FOLLOWING INFORMATION FOR THE NEXT PROBLEM(S) Modular Industries currently has a 16% annual growth rate while the market average is 6%. The market multiple is 10. -Refer to Exhibit 9-2. Determine the P/E ratio for Modular Industries assuming Modular can maintain its superior growth rate for the next 8 years.

Under 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

One way to measure a company's intrinsic value is to divide the company's current dividends by the required return less the dividend growth rate.