Chapter 8 final
Goodwill on the balance sheets of S&P 500 firms changed from $1.7 trillion in 2007 to how much in 2017? Question content area bottom Part 1 A. $25 trillion B. $5 trillion C. $3 trillion D. $1 trillion E. $10 trillion
$3 trillion
Successful strategy implementation
1. requires additional capital beyond net income from operations or the sale of assets 2. Determining an appropriate mix of debt and equity in a firm's capital structure is an important strategy-implementation decision 3. Theoretically, an enterprise should carry enough debt in its capital structure to boost its return on investment in projects earning more than the cost of the debt 4. EPS is an excellent measure of organizational performance
Regarding corporate valuation, a conservative rule of thumb is to establish a business's worth as ______ times the firm's current annual profit. Question content area bottom Part 1 A. 5 B. 3 C. 10 D. 12 E. 6
5
In developing projected financial statements, how are retained earnings calculated on the balance sheet? Question content area bottom Part 1 A. Use a percentage of sales methods based on the prior 3 years. B. Use retained earnings as the plug figure to make the balance sheet balance. C. Add the net income to the prior year's retained earnings. D. Use a percentage of sales method based on the prior 3 years coupled with the company's strategies. E. Add the net income less dividends to the prior year's retained earnings.
Add the net income less dividends to the prior year's retained earnings.
Theoretically, how much debt should a company carry on its balance sheet? Question content area bottom Part 1 A. An enterprise should carry enough debt in its capital structure to keep its debt total lower than its equity total. B. An enterprise should carry enough debt in its capital structure to keep its debt total lower than its net income. C. An enterprise should carry enough debt in its capital structure to boost its return on investment in projects earning more than the cost of the debt. D. An enterprise should carry enough debt in its capital structure to keep its debt total lower than its cash total. E. An enterprise should carry enough debt in its capital structure to keep its debt total lower than its retained earnings total.
An enterprise should carry enough debt in its capital structure to boost its return on investment in projects earning more than the cost of the debt.
EBT is earnings before tax
Another term for earnings is profits or net income
Who is a big advocate for economies of scale, arguing that growth for the sake of growth is a misguided strategy? He suggests firms should be careful not to venture into areas outside their corporate strategy; instead, they should deploy resources into areas that will build economies of scale. Question content area bottom Part 1 A. CEO of Tesla Elon Musk B. Economist Milton Friedman C. President Donald Trump D. CEO of Apple Tim Cook E. CEO of JPMorgan Jamie Dimon
CEO of JPMorgan Jamie Dimon
What formula below is correct for valuing a company using the price-earnings ratio method? Question content area bottom Part 1 A. Divide the market price of the firm's common stock by the firm's current ratio and multiply this number by the firm's average net income for the past 5 years. B. Divide the market price of the firm's common stock by the annual earnings per share (EPS) and multiply this number by the firm's average net income for the past 5 years. C. Divide the market price of the firm's common stock by the firm's debt-to-equity ratio and multiply this number by the firm's average net income for the past 5 years. D. Divide the market price of the firm's common stock by the annual earnings per share (EPS) and multiply this number by the firm's average revenue for the past 5 years. E. Divide the market price of the firm's common stock by the annual earnings per share (EPS) and multiply this number by the firm's average sales for the past 5 years.
Divide the market price of the firm's common stock by the annual earnings per share (EPS) and multiply this number by the firm's average net income for the past 5 years.
What is another term for profits? Question content area bottom Part 1 A. Earnings B. Past income C. Revenue D. Future income E. Net revenue
Earnings
Chapter 8's exemplary strategist, Jamie Dimon, CEO of JP Morgan, is a big advocate for economies of scale. What does Dimon advice regarding this? Question content area bottom Part 1 A. Firms should be careful not to venture into areas outside their corporate strategy. B. Growth for the sake of growth is a good strategy. C. Rising economies of scale produce rising stock prices. D. Economies of scale are less important than benchmarking. E. Firms should deploy resources into areas that hold economies of scale steady because this is often more advantageous to customers, shareholders, and ultimately for the entire economy.
Firms should be careful not to venture into areas outside their corporate strategy.
In what way mentioned below would retained earnings on the balance sheet decrease from one year to the next? Question content area bottom Part 1 A. If the firm has a negative capital surplus B. If the firm had zero net income for the year and pays no dividends C. If the firm has negative paid-in-capital D. If the firm has cash or liquidity problems E. If the firm had positive net income for the year but pays out dividends greater than the net income
If the firm had positive net income for the year but pays out dividends greater than the net income
When a firm buys more of its own common stock, what is the effect on the firm's earnings per share (EPS) value? Question content area bottom Part 1 A. There is no effect. B. The effect varies by industry. C. It goes up. D. The effect varies by size of firm. E. It goes down.
It goes up.
The top 20 most valuable college football programs are listed in the chapter in terms of their monetary value. What team is most valuable? Question content area bottom Part 1 A. Ohio State Buckeyes B. Notre Dame Fighting Irish C. Michigan Wolverines D. Texas Longhorns E. Alabama Crimson Tide
Ohio State Buckeyes
Chapter 8's exemplary strategist, Jamie Dimon, CEO of JP Morgan, says successful strategic planning has more to do with heart than mind. What does Dimon say this means? Question content area bottom Part 1 A. Applaud people for preserving harmony by not speaking. B. Value your own expertise and experiences more than the expertise and experiences of others. C. Employees are the backbone of all firms. D. Recognize people; admit they have all the answers. E. Provide people a platform to which they can contribute.
Provide people a platform to which they can contribute.
In developing projected financial statements, with what row item does one start? Question content area bottom Part 1 A. Cost of Goods Sold B. Revenues C. Cost of Goods Stole D. Earnings E. Cash
Revenues
Which statement(s) below is TRUE? Question content area bottom Part 1 A. Seeing Goodwill regularly increasing on a balance sheet is not a good thing. B. Intangibles increase when treasury stock increases. C. Goodwill is the same term often used for intangibles. D. Goodwill cannot decrease on balance sheet from one year to the next. E. FASB Rule 16 requires companies to admit once a year whether the premiums they paid for acquisitions, called goodwill, were a waste of money.
Seeing Goodwill regularly increasing on a balance sheet is not a good thing.
Which statement(s) is TRUE? Question content area bottom Part 1 A. Sometimes firms will increase their Treasury Stock near the end of the quarter, or near the end of the year, to inflate their EPS "artificially". B. Balance sheets will not balance if retained earnings are negative. C. In developing projected financial statements, the retained earnings row is used as the plug figure. D. New equity issued in a given year goes on the treasury stock row on a balance sheet. E. Another name for the balance sheet account—additional-paid-in-capital—is treasury stock.
Sometimes firms will increase their Treasury Stock near the end of the quarter, or near the end of the year, to inflate their EPS "artificially".
Which of the following statements is TRUE regarding the issuance of corporate bonds in the United States? Question content area bottom Part 1 A. The practice of firms issuing bonds to buy back their own stock and to pay cash dividends to shareholders is illegal. B. Firms issue bonds to finance acquisitions, to buy back their own stock (called preferred stock), and to refinance old debt. C. The year 2017 was the seventh straight year that a record dollar value of bonds was sold in the United States, totalling more than $1.5 trillion. D. A large recent bond transaction was Anheuser-Busch InBev's $4 billion bond issuance to purchase SAB Miller. E. Bonds were discontinued for use in the United States.
The year 2017 was the seventh straight year that a record dollar value of bonds was sold in the United States, totalling more than $1.5 trillion.
Is it true or false that the free Excel strategic planning template at www.strategyclub.comopens in a new tab will automatically balance your projected balance sheets, but 1) you likely will need to make adjustments to the cash account, and 2) the template does not automatically balance your existing balance sheets, i.e. once you enter your firm's financial statements into the template format, you will need to make adjustments as needed. Question content area bottom Part 1 A. True B. Sometimes true C. This issue varies for profit versus nonprofit organizations D. Sometimes false E. False
True
In performing EPS/EBIT analysis, how is the first row (EBIT) determined? Question content area bottom Part 1 A. Use the most recent year EPS number plus or minus the impact of recommendations to determine a range. B. Use the most recent year Cash number plus or minus the impact of recommendations to determine a range. C. Use the most recent year Revenues number plus or minus the impact of recommendations to determine a range. D. Use the most recent year EBIT number plus or minus the impact of recommendations to determine a range. E. Use the most recent year Retained Earnings number plus or minus the impact of recommendations to determine a range.
Use the most recent year EBIT number plus or minus the impact of recommendations to determine a range.
In EPS/EBIT analysis, from where does the tax rate percentage come? Question content area bottom Part 1 A. Use the company's prior year tax rate as revealed by dividing income before taxes by taxes paid off the firm's cash flow statement. B. Use the respective country's federal income tax rate. C. Estimate the company's future tax rate based on the company's strategies. D. Just use 10 percent for all financing options to better examine impact of debt versus stock options for raising capital. E. Use the company's prior year tax rate as revealed by dividing income before taxes by taxes paid off the firm's income statement.
Use the company's prior year tax rate as revealed by dividing income before taxes by taxes paid off the firm's income statement.
Porjected financial statements are? and why is it important?
income statements and balance sheets developed for future years to forecast the potential impacts of various recommendations proposed for implementation allows firms to forecast the expected financial results of various strategies and approaches Most financial institutions require 3 years of projected financial statements whenever a business seeks capital
EPS is earnings per share
net income divided by number of shares outstanding
Shares authorized
number of shares a firm has approval to issue in total
EBIT is earnings before interest and taxes
sometimes called, operating income
Limitations of EPS/EBIT analysis include ______. Question content area bottom Part 1 A. timing and control B. lack of control C. dividends and EPS ranges D. lack of diversity E. continuity and ratio analysis
timing and control
The corporate valuation formula for the net worth method is _____. Question content area bottom Part 1 A. additional paid in capital plus retained earnings minus (goodwill + intangibles) B. total owners' equity (SE) plus (goodwill + intangibles) C. net worth plus retained earnings plus (goodwill + intangibles). D. additional paid in capital plus retained earnings minus (goodwill - intangibles) E. total shareholders' equity (SE) minus (goodwill + intangibles).
total shareholders' equity (SE) minus (goodwill + intangibles).
The shares of stock of a firm that are owned by the firm itself are called _____. Question content area bottom Part 1 A. retained earnings B. goodwill C. convertible stock D. treasury stock E. preferred stock
treasury stock
EPS/EBIT analysis is used for what
widely used technique for determining whether debt, stock, or a combination of the two is the best alternative for raising capital to implement strategies
Which statement below is TRUE? Question content area bottom Part 1 A. "Going public" is not recommended for companies with less than $100 million in sales because the initial costs can be too high for the firm to generate sufficient cash flow to make going public worthwhile. B. Increasingly, companies are using treasury stock to buy back their own stock and to pay cash dividends to shareholders. This has become a concern. C. Many firms prefer to leave their cash outside in Bermuda banks if it was earned outside the United States. To use those funds to pay dividends or purchase treasury stock, for example, would trigger a big U.S. corporate income tax payment. D. "Going public" means selling off a percentage of a company to others to raise capital; consequently, it dilutes the owners' control of the firm. E. In some income statements, another name for earnings is revenues.
"Going public" means selling off a percentage of a company to others to raise capital; consequently, it dilutes the owners' control of the firm.
A full-blown example of a projected financial statement analysis is worked out and presented in Chapter 8 for _____. Question content area bottom Part 1 A. Facebook B. 3M Corp C. P&G D. LinkedIn E. BB&T
P&G
Question content area top Part 1 According to Table 8-5 in Chapter 8, what are the three most corrupt countries in the world? Question content area bottom Part 1 A. Somalia, South Sudan, North Korea B. Vietnam, Thailand, Somalia C. Iraq, Iran, Syria D. Congo, Somalia, Libia E. Syria, Somalia, Libya
Somalia, South Sudan, North Korea
