FIN 320 exam 3

Shamrock Inc. has total assets of $16.0 million including cash and marketable securities of $2.0 million, total liabilities of $7.0 million including debt of $3.0 million and an enterprise value of $24.0 million What is the book value of equity?

$9.0 million

14) Significant capital expenditures

. Decrease asset turnover

13) Reduction in research and development

. Improved operating retention

16)Increase in prices of product sold

. Increase in gross profit margin

34) What is a normal PE ratio for the S&P 500? 1. 10 - 15 times 2. 12 - 17 times 3. 15 - 20 times

13-15

Use the following to answer questions 26 through 30: Shamrock Inc. has total assets of $16 million including cash and marketable securities of $3 million, debt of $2 million, book value of equity of $11 million and market value of equity of $33 million. Last year EBITDA was $4 million and net earnings were $2.2 million. 28) The price to earnings ratio is closest to:

15 times

Shamrock Inc. has total assets of $16.0 million including cash and marketable securities of $2.0 million, total liabilities of $7.0 million including debt of $3.0 million and an enterprise value of $24.0 million What is the market value of equity (market capital) of the company?

25 million

Use the following to answer questions 26 through 30: Shamrock Inc. has total assets of $16 million including cash and marketable securities of $3 million, debt of $2 million, book value of equity of $11 million and market value of equity of $33 million. Last year EBITDA was $4 million and net earnings were $2.2 million. ______30) The price to book ratio is closest to: 1. 2 times 2. 3 times 3. 5 times 4. 8 times

3 times

Use the following to answer questions 26 through 30: Shamrock Inc. has total assets of $16 million including cash and marketable securities of $3 million, debt of $2 million, book value of equity of $11 million and market value of equity of $33 million. Last year EBITDA was $4 million and net earnings were $2.2 million. 27) What is the enterprise value of the company? 1. $32.0 million 2. $33.0 million 3. $34.0 million 4. Some other amount

32 million

Use the following to answer questions 26 through 30: Shamrock Inc. has total assets of $16 million including cash and marketable securities of $3 million, debt of $2 million, book value of equity of $11 million and market value of equity of $33 million. Last year EBITDA was $4 million and net earnings were $2.2 million. Total liabilities equal _________. 1. $2.0 million 2. $5.0 million 3. $7.0 million 4. Some other amount

5 million

9) Effective use of assets

Asset Turnover

20) Temporary shut down for coronavirus

Decrease asset turnover

Acquisition of a significant business

Decrease in asset turnover

18) loss on retirement of debt

Decrease in treasury retention

17) Reduction in price of product sold

Decreased gross profit margin

14)Impairment of goodwill

Decreased operating margin

15) Loss of a lawsuit

Decreased operating margin

10) Increase in effective tax rate

Decreased treasury retention

) Which of the following items would be reported net and before tax as opposed to gross and after tax?

Discontinued operations

4) Risk/Confidence

Financial leverage

22) Which of the following items would be reported net and pretax as opposed to gross and after tax? 1. Selling general and administrative expense 2. Gain or loss on sale of fixed assets 3. Discontinued operations 4. More than one of the above would be reported net and after tax

Gain or loss on sale of fixed assets

3) Production efficiency (value added)

Gross profit margin

12)Reduction in advertising and promotions

Improved operating retention

5) Overall efficiency

Profit margin

2) Effective asset selection (investment decisions)

Return on Assets

8) Overall profitability

Return on Equity

Profit margin is 10%, asset turnover is 1.0, earnings per share are $2.00 and dividends per share are $1.50. Which of the following statements is correct: A. The return on assets is greater than the return on equity B. The return on equity is greater than the sustainable growth rate C. The sustainable growth rate is greater than the return on assets D. The stock is over valued

The return on equity is greater than the sustainable growth rate

Profit margin is 10%, asset turnover is 1.5 times, financial leverage is 2.0 times, earnings per share are $2.00 and dividends per share are $2.50. Which of the following statements is correct: 1. The return on assets is greater than the return on equity PM 10 ROE 30 2. The return on equity is greater than the sustainable growth rate AT 1.5 ER -.75 3. The sustainable growth rate is greater than the return on assets ROA 15 SGR <0 4. The stock is over valued FL 2 ROE 30

The return on equity is greater than the sustainable growth rate AT 1.5 ER -.75

______31) Profit margin is 10%, asset turnover is 1.0, earnings per share are $2.00 and dividends per share are $2.50. Which of the following statements is correct? PM 10 DPO 1.25 1. The return on assets is greater than the return on equity AT 1 ER -.75 2. The return on equity is greater than the sustainable growth rate ROA10 3. The sustainable growth rate is greater than the return on assets ROE 20 4. The stock is over valued ER -.75 SGR < 0

The return on equity is greater than the sustainable growth rate ROA10

25) Profit margin is 10%, asset turnover is 0.5, financial leverage is 2.0, earnings per share are $2.00 and there were no dividends. Which of the following statements is correct? 1. The return on assets is greater than the return on equity PM 10 ROE 10 2. The return on equity is greater than the sustainable growth rate AT .5 ER 1 3. The sustainable growth rate is greater than the return on assets ROA 5% SGR 10 4. The stock is over valued FL 2 ROE 10= SGR

The sustainable growth rate is greater than the return on assets ROA 5% SGR 10

35) A company has a very high PE ratio (60 times). This most likely indicates that: 1. the stock has the potential to increase in price by 60%. 2. historic earnings are unusually high 3. historic earnings are unusually low 4. the stock is over valued

historic earnings are unusually low

Use the following to answer questions 26 through 30: Shamrock Inc. has total assets of $16 million including cash and marketable securities of $3 million, debt of $2 million, book value of equity of $11 million and market value of equity of $33 million. Last year EBITDA was $4 million and net earnings were $2.2 million. 29) The EV to EBITDA ratio is closest to: 1. 5 times 2. 8 times 3. 8.25 times 4. 15 times

8 times

On 4/19/17 Ebay's stock closed near $34.00 per share representing a PE ratio of only 5 times. The company normally trades at between 18-22 times earnings. What is the most logical explanation/conclusion for the low PE ratio?

A. Net income as reported includes significant non-recurring gains/income

17) When speaking about the income statement financial analysts often talk about "above the line" and "below the line" items. What specific item is "the line"?

Income from continuing operations

______ 21) When speaking about the income statement financial analysts often talk about "above the line" and "below the line" items. What specific item is "the line"? 1. Operating Income 2. Pretax Income 3. Income from continuing operations 4. Net income available to shareholders

Income from continuing operations

19) EBITDA is commonly used to measure unlevered operating cash flow. Which financial statements are normally needed to measure EBITDA?

Income statement and statement of cash flows

15)Decrease in cost of goods sold

Increase in gross profit margin

11)Reduction in dividends

Increased earnings retention

16 ) increase in borrowing

Increased financial leverage

12 )Reduction in cost of product sold

Increased gross profit margin

11) Decrease in effective tax rate

Increased profit margin

On 4/19/18 AutoZone closed at just under $604 per share representing a PE ratio of 12.8 times earnings. The company also has a ROE that is negative. The reason for this odd ratio combination is that: 1. The stock is significantly over valued 2. The stock is significantly under valued 3. The company has bought back significant treasury stock and has negative equity 4. The company has chosen to be very lightly leveraged

The company has bought back significant treasury stock and has negative equity

19) discontinued operations

No impact on recurring NICO

6) Treasury function efficiency

Non-operating retention

1) Operating efficiency of a business

Operating (EBIT) Margin

7) Non-production operating efficiency

Operating retention

33) Which of the following depicts the correct order of an income statement: 1. Extraordinary, Non-operating, Operating 2. Operating, Extraordinary, Non-operating 3. Non-operating, Operating, Extraordinary 4. Operating, Non-operating, Extraordinary

Operating, Non-operating, Extraordinary