FIN 4514 ch. 14

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

D

The franchise P/E is a function of A. Relative rate of return on new business opportunities B. Size of superior return opportunities. C. Duration of earnings growth. D. a and b E. a, b and c

D

When using the Present Value of Operating Free Cash Flow model, the firm's operating free cash flow to the firm is discounted by the firm's: A. Cost of equity B. Cost of debt C. Required rate of return D. Weighted Average Cost of Capital E. Beta-adjusted cost of equity

D

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. a and b above. E. All of the above are business tenets of Warren Buffet.

A

Market value-added is a measure of ____ performance. A. External B. Internal C. Competitive D. Economic E. None of the above

A

Speculative 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. E. None of the above.

A

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 A. Weighted average cost of capital. B. Cost of debt. C. Internal rate of return. D. External cost of new equity. E. Net present value.

A

Walgreen's higher P/BV ratio than the market or industry is most likely attributed to Walgreen's A. Consistently higher ROE B. Difference in WACC C. Marketing strategy D. Lower cost of assets E. None of the above

A

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, operating margin E. Sales growth rate, volatility of profit margin, profit margin

A

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

A firm that follows a low cost leadership strategy A. Must heavily discount its prices. B. Must command prices near the industry average. C. Must focus on providing exceptional quality and service. D. All of the above. E. None of the above.

B

A speculative stock possesses a ____ probability of ____ return and is currently ____. A. High, negative, underpriced. B. High, negative, overpriced. C. High, positive, overpriced. D. Low, negative, overpriced. E. Low, positive, underpriced.

B

Defensive 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. E. None of the above.

B

When a firm seeks to identify itself as unique in its industry in an area that is important to buyers it is known as a A. Defensive strategy B. Differentiation strategy C. Low-cost strategy D. Focused strategy E. Value strategy

B

Which of the following factors does not indicate market liquidity? A. Number of shareholders B. High price volatility C. Number of shares outstanding D. Number of shares traded E. Institutional interest

B

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

B

Which of the following statements concerning SWOT analysis is false? A. Strengths are the factors that give the firm a comparative advantage in the marketplace. B. Weaknesses result when the company has potentially exploitable advantages over other firms. C. Opportunities are environmental factors that favor the firm. D. Threats are environmental factors that can hinder the firm in achieving its goals. E. None of the above (that is, all statements are true)

B

A firm that follows a differentiation strategy A. Must heavily discount its prices. B. Must command prices near the industry average. C. Must focus on providing exceptional quality and service. D. All of the above. E. None of the above.

C

A growth company is one that has the ability to A. Acquire capital at a low cost and is able to invest in projects that yield an average return. B. Acquire capital at a low cost and is able to invest in projects that yield a below average return. C. Acquire capital at an average cost and is able to invest in projects that yield an above average return. D. Acquire capital at an average cost and is able to invest in projects that yield an average return. E. Acquire capital at an above average cost and is able to invest in projects that yield an average return.

C

A growth company may exist for all of the following reasons except A. The company holds patents. B. The company possess unique distribution or marketing strategies. C. The company is in a competitive environment. D. Significant barriers to entry exist. E. All of the above are reasons a growth company may exist.

C

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. E. None of the above.

C

Evidence that a firm has high business risk would be provided by its volatile ____. A. Fixed costs. B. Profit after taxes. C. Operating profit. D. Sales. E. Employee turnover.

C

Porter contends that ____ and ____ are two important competitive strategies. A. Low cost leadership, barrier to entry B. New entrant deterrent, differentiation C. Low cost leadership, differentiation D. Differentiation, monopolistic E. Monopolistic simulation, differentiation

C

Studies that have examined the relationship between EVA and MVA have found A. An inverse relationship. B. A positive relationship. C. A poor relationship. D. EVA always exceeded MVA. E. MVA always exceeded EVA.

C

Which of the following is a financial tenet of Warren Buffett? 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.

C

In SWOT analysis, one examines all of the following factors, except A. Strengths. B. Weaknesses. C. Opportunities. D. Threats. E. Turnarounds.

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

D

A firm that follows a defensive competitive strategy could A. Lower production costs. B. Create a strong brand image. C. Use its buying power to obtain price concessions. D. a and b. E. b and c

D

A growth company can invest in projects that generate a return greater than the firm's A. Return on equity. B. Cost of debt. C. Cost of equity. D. Cost of capital. E. Return on assets.

D

A set of performance measures called ____ are directly related to the capital budgeting techniques used in corporate finance. A. Dividend discount model B. Aggressive growth indexes C. Growth indexes D. Value added E. Profit sensitization

D

In a(n) ____ strategy, a firm seeks to identify itself as unique within its industry. A. Defensive B. Offensive C. Low-cost D. Differentiation E. None of the above

D

Peter Lynch identified a number of attributes of firms that may result in favorable stock market performances, including A. Products that are faddish, people like change. B. Firms that have competitive advantages over their rivals. C. Firms that can benefit from cost reductions. D. Choices b and c only E. All of the above

D

The following are tenets of Warren Buffett: A. Business tenets. B. Financial tenets. C. Management tenets. D. All of the above. E. None of the above.

D

Which of the following is not a value added performance measure? A. Economic Value Added (EVA) B. Market Value Added (MVA) C. Franchise Factor D. Company Value Added (CVA) E. None of the above (that is, all are value added performance measures)

D

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

D

Which of the following is not considered in the price-earnings ratio technique? A. Firm's required rate of return on equity (k) B. Firm's dividend payout ratio (D/E) C. Firm's expected growth rate of dividends (g) D. All of the above are components of P/E ratio E. None of the above are components of P/E ratio

D

Which of the following is not considered when looking at free cash flow to equity technique? A. Depreciation expense B. Change in working capital C. Principal debt repayments D. Change in competitive environment E. Net income

D

Which of the following ratios is least likely to be impacted by accounting manipulation? A. P/E B. ROE C. ROI D. P/S E. PM

D

"Economic profit" is analogous to ____ in capital budgeting. A. Weighted average cost of capital B. Internal rate of return C. Composite discount rates D. Discounted cashflows E. Net present value

E

An inconsistency between a stock's P/E ratio and growth rate can be attributed to all of the following, except A. A major difference in the risk involved. B. Inaccurate growth estimates. C. An undervaluation of the stock. D. An overvaluation of the stock. E. Competition.

E

In Berkshire Hathoway annual reports Warren Buffet highlights financial tenets that he believes are important. Which of the following is not a financial tenet of Warren Buffet? A. Focus on return on equity (ROE) not earnings per share (EPS). B. Calculate owner earnings similar to free cash flow after capital expenditures. C. High profit margins relative to the industry. D. Company should create at least one dollar of market value for every dollar retained. E. All of the above are financial tenets of Warren Buffet.

E

Which of the following is not a determinant of the capital gain component? A. The percentage of earnings retained for reinvestment. B. The relative rate of return earned on the funds retained. C. The time period for these growth investments. D. The amount of capital invested in growth investments. E. All of the above are determinants of the capital gain component.

E

Which of the following is not a technique for valuing a firm's common stock? A. Present value of free cash flow to equity B. Present value of dividends C. Price-earnings ratio D. Price-book value ratios E. Price-cost of goods sold ratio

E

Which of the following is not considered a favorable attribute of firms by Peter Lynch? A. Firm's product is not faddish B. Firm has a sustainable comparative competitive advantage over its rivals C. Firm's industry or product has market stability D. Firm can benefit from cost reductions E. All of the above are considered favorable attributes by Peter Lynch

E

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

E