Series 86 Greenlight Exam 2
If Newman Corp's earnings are anticipated to grow from 35 cents to 42 cents and the PEG is 1.2. What is target price? A $10.08 B $11.65 C $12.25 D $14.40
A $10.08
An analyst is predicting that Carlin's Laughs Inc. revenue will grow from $385,000,000 to $445,000,000. The company's EPS is $1.38 and is estimated to increase to $1.51 per share. If the analyst believes the company should trade at a PEG ratio of 1.45 based on next year's estimate, what is the target price for Carlin's Laughs Inc.? A $21 B $25 C $27 D $34
A $21
Use the following information to answer the question: Company A Company B Revenues $100 million $80 million COGS $50 million $40 million Company A is a customer of Company B and accounts for 40% of Company B's revenues. In order to gain operational efficiencies, Company A acquires Company B. If the combined company has a tax rate of 20%, what is the pro-forma consolidated net income after the acquisition? A $72 million B $90 million C $58 million D $148 million
A $72 million
Relevant financial information to answer the following question is found by using Exhibit 10. Cash $ 254 Long-term debt $ 1,850 Account Receivable 283 Equity 975 Inventories 509 Property & Equipment, net 1,779 Total Assets $ 2,825 Total Liabilities and Equity $ 2,825 The company has a marginal tax rate of 21% and a before-tax cost of debt 8%. You have assigned an equity cost of capital of 10%, and believe the current market value of the stock is equal to the book value per share. Based on the company's balance sheet, what is Brawn's weighted average cost of capital? A 7.6% B 1% C 5.7% D 4.1%
A 7.6%
Bodolay Corporation is capitalized as follows. Common stock $24,000,000 Preferred stock $6,000,000 Debt $10,000,000 Its cost of capital is 6.0% on debt, 7.0% on preferred stock, and 8.5% on common stock. What is the company's weighted average cost of capital? A 7.65% B 7.17% C 6.85% D 6.26%
A 7.65%
Which of the following events signals sales growth in a company? A Accounts receivable increase; account receivable turnover increases. B Account receivables decrease; account receivable turnover increases. C Inventory turnover increases; accounts payable declines. D Inventory turnover declines; accounts payable increases.
A Accounts receivable increase; account receivable turnover increases.
The most accurate method for determining the core profitability of Clara Mae in 2018 would be to: Use the financial statements from the Clara Mae Candy Company to answer the question. (Answer choices are displayed after the tables.) A Adjust for non-recurring items and ignore discontinued operations B Adjust for non-recurring items only C Ignore discontinued operations only D Include non-recurring items and ignore discontinued operations
A Adjust for non-recurring items and ignore discontinued operations
If a firm's enterprise value is less than the market capitalization of its common stock, the company has: A Cash, but no debt B No cash, but has debt C Cash less than its debt D Treasury stock
A Cash, but no debt
Which of the following will NOT affect EPS? A Declaration of a cash dividend B Payment of a stock dividend C Changes in depreciation D Changing from FIFO to LIFO
A Declaration of a cash dividend
Which of the following is the BEST metric to analyze profitability between companies and industries? A EBITDA B EBIT C Interest coverage ratio D Working Capital
A EBITDA
The Sollozzo Company capitalizes its software costs rather than expensing the costs in the year incurred. The company would be expected to have: A Higher EBITDA and higher capitalized costs B Higher EBITDA and lower capital costs C Lower EBITDA and lower capitalized costs D Higher EBIT and lower capital costs
A Higher EBITDA and higher capitalized costs
Operating cash flow will decline if which of the following entries increases? A Inventory B Accounts payable C Fixed assets D Treasury stock
A Inventory
In an industry, companies A, B, and C have a market share of 23%, 27%, and 30%, respectively. This market is a(n): A Oligopoly B Monopsony C Duopoly D Polopony
A Oligopoly
Which ratio takes into consideration a company's growth potential along with its prospects for continued earnings? A PEG ratio B EV/EBITDA ratio C EV/Sales ratio D P/E ratio
A PEG ratio
A company's stock has a market price per share of $35, the number of shares outstanding is 12 million, and the current book value is $300 million. If the company buys $4 million of its stock back at the current market price, which of the following statements is TRUE? A The book value per share will be slightly less after the purchase. B The book value per share will be slightly higher after the purchase. C The book value per share will be significantly less after the purchase. D The book value per share will remain unchanged.
A The book value per share will be slightly less after the purchase.
Company R has $300 MM in sales and a net profit margin of 10%. It has earnings of $1.00 per share and is subject to a tax rate of 32%. The company is considering a relocation that would reduce its effective tax rate. It has a significant amount of cash and equivalents and may want your firm to handle a common stock repurchase. The company has recently begun marketing a new product and expects its sales to increase. Which of the following events would have the smallest impact on the company's EPS? A The company's effective tax rate falls to 29% B The company buys back 2 million shares of common stock C Sales increase by 5% D Sales increase by 3% and it buys back 1 million shares
A The company's effective tax rate falls to 29%
Which of the following events is dilutive to the basic earnings per share of a company? A stock split B The exercise of exchange-traded options C A reverse stock split D The issuance of convertible bonds
A stock split
ABC Company produces a product that's used by the DEF Industry. The ABC Company --> DEF Industry --> PDQ Industry The PDQ Industry has been deregulated. Previously, regulations restricted the prices charged, thereby restricting return on equity within the industry. In 2019, the PDQ Industry forecasts a capital expenditure increase of 20% A. ABC Company's stock prices should increase. B. ABC Company's stock prices should decline. C. DEF Industry stock prices should decline. D. PDQ Industry stock prices should decline.
A. ABC Company's stock prices should increase.
Company X has issued debt. This has increased its debt to equity ratio. Which of the following choices is likely to exhibit the greatest change? A. Company X's cost of the debt B. The amount of funds available to equity shareholders C. Company X's cost of equity D. The company's FCFF
A. Company X's cost of the debt
What is one of the advantages of using leading EPS when calculating the P/E ratio? A. Nonrecurring items may be neutralized B. Nonrecurring items may be added to the computation C. The ratio will present the historical value of the company D. The ratio will be higher than the trailing P/E ratio
A. Nonrecurring items may be neutralized
The risk-free rate was 3%, but is now 0.3%. Company A's beta has remained 1.5 even as interest rates have fallen. The expected return on the market is 10%. What's the difference between the expected rates of return in the two periods for Company A? A 0.80% B 1.35% C 1.60% D 1.80%
B 1.35%
The East Bay Corporation has a market capitalization of $240 MM, total assets of $200 MM, and total liabilities of $75 MM. If the company has net income of $20 MM, and a dividend payout ratio of 50%, what is its PEG ratio? A 1.33 B 1.50 C .667 D .750
B 1.50
Determine and then select L.R. Gamble's dividend payout ratio. A 61.2% B 24.1% C 11.6% D 48.0%
B 24.1%
The subject company is a publicly traded firm desiring to buy a privately held finance company. The acquirer is willing to pay 2.7x book value, and its share price is $45. If the privately held company's current book value is $58 million, and was $55 million the previous year, how many shares would the acquiring company need to offer? A 3.3 million B 3.48 million C 2.4 million D 2.7 million
B 3.48 million
What is the Borgward Company's equity cost of capital? Current vs Projected Dividends $ 1.50 $ 1.70 EPS $ 2.50 $ 2.83 Return on Equity 9.5% Beta 0.9 S&P 500 expected return 8.5% T-bill yield 4.5% A 7.65% B 8.1% C 8.5% D 9.5%
B 8.1%
Knutz, Inc. Boltz, Co. EBIT $6,250,000 $1,080,000 Net Income $4,700,000 $840,000 Earnings Available to Common $4,400,000 $840,000 Shares Outstanding 2,000,000 800,000 Price of Common Stock $24 $12 Knutz, Inc. is purchasing Boltz, Co. The acquisition price will be at a 20% premium above the market share price. Shareholders of Boltz, Co. will receive shares in Knutz, Inc. What is the effect of the acquisition on Knutz's EPS? A No effect B 9 cents dilutive effect C 24 cents dilutive effect D 26 cents accretive effect
B 9 cents dilutive effect
Which of the following scenarios would benefit a coal mining company? A Competition entering the market B An electric utility plant opens nearby C Stricter environmental laws D High unemployment
B An electric utility plant opens nearby
Which change in a balance sheet would increase operating cash flows? A Decrease in accumulated depreciation B An increase in accrued vacation C A decrease in accounts payable D An increase in accounts receivable
B An increase in accrued vacation
Company A has $300,000 in fixed costs and $340,000in variable costs. Company B has $340,000 in fixed costs and $300,000in variable costs. Company A has significantly higher capacity utilizationthan Company B. Both companies have excess capacity. Given the facts above, if each of the companies increases unit sales by 10%, which company has faster margin growth? A Company A because of its fixed cost ratio B Company B because of its fixed cost ratio C Company A because of lower capacity utilization D Company B because of higher capacity utilization
B Company B because of its fixed cost ratio
Two companies have defined benefit pension plans. Company A uses a discount rate of 4% to calculate its pension fund liabilities, and Company B uses a 6.5% discount rate to calculate its pension fund liabilities. Which of the following statements is TRUE? A Company A is using a more aggressive method of accounting B Company B is using a more aggressive method of accounting C Company A will have higher pension fund assets D Company B will have higher pension fund assets
B Company B is using a more aggressive method of accounting
In 2018, Company A had $610 million dollars of revenue on 200,000 units sold. Company B had $820 million of revenue on 280,000 units sold. In 2019, Company C entered the market and sold 240,000 units and had revenue of $255 million. In 2019 Company A had $625 million dollars of revenue on 205,000 units and Company B had $835 million of revenue on 285,000 units sold. Which of the following choices best explains this situation? A Company C entered the market with lower prices and stole business from Companies A and B B Company C entered the market with a lower-priced product and sold to a new client base C Company C entered the market with higher-priced goods and was not able to capture significant market share D Company C entered the market with lower prices and Companies A and B lowered their prices to compete
B Company C entered the market with a lower-priced product and sold to a new client base
Which of the following actions by a company would provide an additional source of liquidity? A Changing the inventory valuation method from LIFO to FIFO B Creating an accounts receivable securitization program C Reducing the amount of the commercial paper program D Paying off a portion of the long-term debt
B Creating an accounts receivable securitization program
Within the supply chain of an industry, widget manufacturers sell their product to the XYZ Company. XYZ sells its product to the ABC Company XYZ purchases 70% of the widget production output ABC purchases 90% of the output from XYZ Regulations have previously restricted ABC's capital investment in facilities. It is now unregulated. This will permit ABC to increase capital expenditures within its facilities. The widget industry has low barriers to entry. What are the short-term and long-term pricing effects of the deregulation of ABC on the widget industry? A Widget prices would decline in the short term and over the long term B In the short term, widget prices would rise and over the longer term, prices would decline C In the short term, widget prices would decline and over the longer term, prices would rise D Widget prices would not be affected
B In the short term, widget prices would rise and over the longer term, prices would decline
Whutsit Corporation is a U.S.-based company. It manufactures 70% of its products in the European Union but sells 90% of its products in the EU. If the euro appreciates from $1.20 to $1.40, you would expect revenues to: A Increase, but less than the COGS increases B Increase and profit margins to increase C Decrease and profit margins to remain the same D Increase and profit margins to remain the same
B Increase and profit margins to increase
Which of the following statements is TRUE of an industry with zero economic profit? A The industry will eventually cease to exist. B Individual companies may still generate normal profits. C Capital expenditure exceeds normal profit. D Revenues exceed costs.
B Individual companies may still generate normal profits.
ABC Inc. is a telephone software company that's used by a large number of enterprises. Recently, many people have begun working from home. The DEF company, which provides video conferencing, provides a low cost and easy-to-use service that utilizes the Internet. DEF entered the market a few years prior and has had modest success to date. What's the likelihood of DEF video conferencing posing a threat to ABC telephone company? A Likely because video is a complete substitute for telephone. B Likely because video will take demand from traditional audio calls. C Unlikely because the need for both services are complementary when working from home. D Unlikely because as an established industry, telephone cannot be disrupted.
B Likely because video will take demand from traditional audio calls.
A rating agency downgrades the rating of country M. The currency is devalued relative to the U.S. dollar. A U.S. investor owning the bonds of country M will experience: A Unrealized appreciation B Lower income attributable to currency exchange rate C Higher income from increase in bond price D Higher income from increase in yields
B Lower income attributable to currency exchange rate
When a company is engaged in channel stuffing, it's: A Recording revenue when goods are sold to consumers rather than when they're delivered to distributors B Overstating revenues by selling more than being demanded by customers C Selling more inventory than what's listed on the balance sheet D Returning goods to sellers and revenue dropping drastically
B Overstating revenues by selling more than being demanded by customers
In order for a company to add value for its equity stakeholders: A Economic profit must be less than the required rate of return B ROE must exceed the cost of equity C The cost of capital should equal the economic profit D The cost of capital should be less than the required rate of return
B ROE must exceed the cost of equity
The Motus Company leases mass transit vehicles and regularly issues commercial paper. The company has reached a terminal growth rate of 3.0%. What would an analyst expect if the rate on the T-bill increases by 50 basis points? A The company's WACC would decline. B The FCFF would not change. C The weighted average cost of equity would decline. D The company's cost of debt would decrease
B The FCFF would not change.
The Sloan Corporation has the following financial information. 2012 2018 Net Income$156 MM $228 MM Average Assets $1.0 B $1.5 B Sales $1.5 B $2.49 B Based on this information, what happened to this company during the six-year period? A The ROA did not change B The ROA declined as the net profit margin decreased C The ROA, net profit margin, and asset turnover all declined D The ROA declined, but the asset turnover was lower
B The ROA declined as the net profit margin decreased
Which of the following features is a disadvantage of DCF analysis? A The evaluation rendered is based only on the current earnings power of a company B The WACC is often assumed to be a constant C The evaluation of cash flows is a less accurate measurement of performance than net income D The analysis is only applicable to U.S.-based companies since GAAP measurements are used
B The WACC is often assumed to be a constant
A research analyst goes to a conference attended by market professionals for the Smother Corporation where the company projects an 8% annual growth rate over the next five years. The analyst projects a 10% growth rate. What should the analyst use to create the price target in the research report? A The more conservative company estimate B The analyst's estimate, while mentioning the company estimate in the report C The consensus estimates D The company's historical growth rate
B The analyst's estimate, while mentioning the company estimate in the report
A research analyst is reviewing the earnings of a company based on the current nine months as compared to the previous nine months. The company has sales of $100 million during the current period, compared to sales of $90 million during the last period. Also, it has earnings per share of $0.50 per share during this period, compared to $0.40 per share during the last period. The current earnings period also includes a $5 million after-tax successful litigation payment from a competitor and a $5 million after-tax payment for the one-time sale of one of its businesses. Based on all of this information, which of the following is the greatest concern? A The company's sale growth. B The company's EPS growth. C The impact of the litigation payment. D The impact of the sale of the business.
B The company's EPS growth.
Orchid Stationers, is considering the repurchase of a portion of its outstanding debt. The company has WACC of 8% and a debt to total capitalization ratio of 25%. Which of the following changes would result if Orchid repurchases its debt? A The company's WACC will decline B The company's WACC will increase C The return on assets would not change D The return on assets would decline
B The company's WACC will increase
The Quincy Corporation has two business segments. Its copper mining business contributes 90% of the company's overall earnings, while the financial services division generates much lower revenues, but a significantly higher profit margin. The company recently sold its retail furniture stores and leather tanning factory. These businesses had remained unprofitable for several consecutive quarters. What is the best approach to value the Quincy Corporation? A The sum-of-the-parts valuation method should be used if the divisions have different growth rates B The sum-of-the-parts valuation method should be used if different valuation methods are used C A discounted cash flow method is preferable, since each remaining segment is profitable D EV / EBITDA should be used due to the significance of the company's industrial base
B The sum-of-the-parts valuation method should be used if different valuation methods are used
The Quincy Corporation has two business segments. Its copper mining business contributes 90% of the company's overall earnings, while the financial services division generates much lower revenues, but a significantly higher profit margin. The businesses had remained unprofitable for many quarters. Quincy is now considering an acquisition of Iron Work Dockyards. What is the best approach to value the Quincy Corporation? A EV/Sales should be used, since the cash position of the company will have a negative effect on enterprise value B The sum-of-the-parts valuation method should be used if different valuation methods are used for the remaining business segments C A discounted cash flow method is preferable, since each remaining segment is profitable D EV/EBITDA should be used due to the significance of the company's industrial base
B The sum-of-the-parts valuation method should be used if different valuation methods are used for the remaining business segments
In a mature company, if WACC increases, which of the following results would be expected? A The terminal value decreases and the valuation of the company increases B The terminal value decreases and the valuation of the company decreases C The terminal value increases and the valuation of the company decreases D The terminal value and company value remain the same
B The terminal value decreases and the valuation of the company decreases
Which of the following factors affects the elasticity of supply the most? A Availability of substitute products B Time available to change production C Proportion of a budget devoted tothe item D The degree to which an item is a necessity
B Time available to change production
Year 1 Year 2 Year 3 Year 4 EV / EBITDA Co G 27, 13, 10, 30 EV / EBITDA Sector Av 21, 18, 15, 22 Based on the above exhibit, Company G: A Was overvalued and is now undervalued B Was undervalued and is now overvalued C Appears to be fairly valued D Has been consistently overvalued
B Was undervalued and is now overvalued
Use the following information to estimate this company's per share price at the end of 2020:At the end of 2019, the share price was $12 Assume a constant forward earnings multiple Base the 2020 price forecast on the 2021 multiple There are 100 million shares outstanding 2020 Actual 2021 Estimated Net income $100 $110 Decrease in working capital $5 $7 Operational gain $15 $20 Capital Expenditure $50 $55 Dividends $10 $10 A. $12.60 B. $13.20 C. $14.45 D. $17.00
B. $13.20
Year One Year Five Sales in thousands $610 $700 Units 170 250 What was the revenue loss attributable to pricing? A. 28% B. 22% C. 0.11% D. 36%
B. 22%
Action Traction Corporation has a large number of intangibles on its balance sheet. Which of the following balance sheet items would NOT be included when calculating tangible book value? A. Copyrights and patents B. Goodwill carried on the books of the company C. Inventories of work in process D. Investments in securities
B. Goodwill carried on the books of the company
Rank the companies from MOST to LEAST attractive. Use EV/EBITDA as a valuation metric. A. Z, W, X, V, Y B. Z, W, X, Y, V C. V, Y, W, X, Z D. Y, Z, W, X, V
B. Z, W, X, Y, V
A company is considering a project that will generate pretax profits of $6,000,000 over three years. The company wants to record the entire amount this year for tax purposes. If the company's marginal tax rate (MTR) is 39% and its effective tax rate is 33%, it will have a deferred tax asset of: A $1,220,000 B $1,320,000 C $1,560,000 D $2,000,000
C $1,560,000
Determine and then select L.R. Gamble's earnings per share (basic). Net income $555,824 Note A: The weighted average number of common shares outstanding for 2018 and 2017 were 281,697 and 268,022 respectively. Note B: In 2018, the company distributed dividends to the common shareholders in the amount of $134,011. A $3.94 B $0.99 C $1.97 D $19.70
C $1.97
The Regentes Corporation is considering acquiring the Collegii Company using common stock. Relevant financial information is as follows: Regentes, Collegii Present earnings (in 1000s) $8,100 $2,500 Common shares outstanding (in 1000s) 2,700 1,250 Earnings per share $3.00 $1.80 Price/earnings ratio 12 8 Regentes plans to offer a premium of 25% over the market value of Collegii stock. What are the earnings per share for the surviving company immediately following the merger? A $4.17 B $2.18 C $3.19 D $3.00
C $3.19
MSD Pharmaceuticals has retained earnings at the end of 2017 of $39,095.1 MM and net income in 2017 of $3,325.5 MM. In 2018, the company's net income increased by 8% and at the end of the year it paid a cash dividend of $3,310.7 MM. What is the 2018 ending balance of the company's retained earnings if it has a 21% tax rate? A $42,686.6 MM B $42,405.8 MM C $39,375.9 MM D $39,109.9 MM
C $39,375.9 MM
Hamilton Golf Industries Income Statement ($ millions) Sales 198.000 Cost of Goods Sold 104.000 Xxxxxx 94.000 Operating Expenses 61.000 Xxxxxx 33.000 Interest Expense 12.000 Taxes 6.300 Xxxxx 14.700 Preferred Dividend 0.525 Xxxxx 14.175 Common Dividend 1.160 Xxxxx 13.015 Shareholder Information Preferred Stock ($50 Par) 7.500 Common Stock ($1.00 Par) 3.000 Additional Paid-In Capital 57.000 Treasury Stock (100,000 Shares) (2.500) Retained Earnings 126.550 What is Hamilton Golf Industries' EPS? A $4.49 B $4.72 C $4.89 D $5.06
C $4.89
Use the information in the table to answer the question. Revenue, Net Income, Forward P/E Multiple Range, Expected Growth $445 MM $42 MM 14.00 - 17.00 6% What is the implied equity value range for this A $690.06 MM to $1,380.12 MM B $667.8 MM to $712.32 MM C $623.28 MM to $756.84 MM D $552.72 MM to $671.16 MM
C $623.28 MM to $756.84 MM
Use the information in the table to answer this question. Hostee Bakeries EPS $2.20 Dividend $1.10 ROE 15% Cost of Equity 11% An investor is interested in a possible purchase of Hostee Bakeries. What is the P/E of the company, based on use of the Gordon Growth Model? A 5:1 B 8:1 C 15:1 D There is insufficient information to derive a P/E
C 15:1
Relevant financial information to answer the following question is found by using Exhibit 47. The Pear Company, The LED Company Net Income $5.70B $2.47B Shares Outstanding 900.68MM 1.96B Market Price $199.50 $14.30 The Pear Company has offered to buy LED for $18.00 a share, with 20% of the transaction in cash and 80% in stock. A firm has agreed to lend all of the funds for the acquisition at 5%. If the Pear Company's tax rate is 21%, the deal will be approximately: A 20% dilutive to EPS B 24% dilutive to EPS C 20% accretive to EPS D 24% accretive to EPS
C 20% accretive to EPS
While preparing an assessment on a company, you have been asked to normalize or clean a company's earnings. The AFC Company has provided the following information: Net Sales of 900, Cost of Sales of 500, SG&A of 50, and Interest expense of 50. The company also had an accelerated write-down which resulted in a restructuring charge of 100. The company has a marginal tax rate or 21% and an effective tax rate of 15%. Calculate the company's net income without the restructuring charge. A 400 B 300 C 237 D 258
C 237
An analyst is valuing a company which is a target in an M&A transaction and is given the following information on a company. Current stock price: $45.50Outstanding shares: 240,450,000EBITDA: $1.65 billionCash: $1.58 billionDebt: $1.60 billion If the appropriate transaction multiple is 9 times EBITDA and the target is offered this value, which of the following statements is TRUE? A The company's current EV / EBITDA is higher than the implied offer price B An offer of a 30% premium above the current stock price may be too high C An offer of a 20% premium above the current stock price may be too low D An offer at the current stock price would be appropriate based on the transaction multiple
C An offer of a 20% premium above the current stock price may be too low
As provided by the Commerce Department, housing starts is: A Forward looking and not seasonably adjusted B Forward looking and seasonably adjusted C Backward looking and seasonably adjusted D Backward looking and not seasonally adjusted
C Backward looking and seasonably adjusted
Relevant financial information to answer the following question is found by using Exhibit 65. Using the information in the table, which of the following companies is the MOST overvalued? Use EV / EBITDA as the valuation metric, and use the next 12 months' EBITDA projections. A Company V B Company W C Company X D Company Z
C Company X
From first to last, what's the correct order of expenses on an income statement? A Depreciation, Bond Interest Expense, Cost of Goods Sold, Taxes B Depreciation, Taxes, Bond Interest Expense, Cost of Goods Sold C Cost of Goods Sold, Depreciation, Bond Interest Expense, Taxes D Bond interest expense, Taxes, Cost of Goods Sold, Depreciation
C Cost of Goods Sold, Depreciation, Bond Interest Expense, Taxes
All of the following situations would indicate inflationary pressure on the economy, EXCEPT: A Falling weekly jobless claims B Rising retail sales figures C Falling industrial production D A rising consumer price index
C Falling industrial production
A company's cash flow will increase as a result of which of the following balance sheet changes? A Inventory and accounts payable both increase B Accounts receivable increases and inventory declines C Inventory declines and accounts payable increases D Inventory increases and accounts payable declines
C Inventory declines and accounts payable increases
According to the capital asset pricing model: A Low beta stocks have higher-than-average costs of equity capital B High beta stocks have lower-than-average costs of equity capital C Low beta stocks have lower-than-average costs of equity capital D The T-bill rate has no relationship with the cost of equity capital
C Low beta stocks have lower-than-average costs of equity capital
If the money supply is expanding rapidly and there is no increase in the price level, a monetarist might conclude: A We have become a nation of hoarders B Interest rates are not low enough to incentivize business C Money velocity is falling D We are in a deflationary spiral
C Money velocity is falling
The business depicted below is most likely a: Aristotle Corp. Year 2016 2017 2018 Sales 984 1145 1430 EPS (0.55) (0.25) 0.02 A Gas and electric utility B Shipping company C Technology company D Retail drug company
C Technology company
What's the LEAST likely explanation for why two firms in the same industry have a difference in their price-to-sales ratios? A The two firms use different auditing firms. B There's a difference in revenue recognition policies. C There are differences in their capital structures. D One firm has been publicly traded for a longer period.
C There are differences in their capital structures.
A tax credit was available on Product X, but the credit has recently expired. If demand remains high for Product X, which of the following is the BEST rationale? A There's an expectation that the tax credit will return. B The product generates high net income. C There's a lack of a substitute product. D There's a lack of complementary products.
C There's a lack of a substitute product.
United Corporation's five-year EPS growth is above 10%.The dividend payout ratio is 2 times the industry average.The return on capital is 10%. Its competitor, National Corporation, has similar EPS growth and a return on capital of 15%. Which of the following statements LEAST likely explains the difference in the return on capital? A National Corporation repurchases a greater amount of its common stock than United B National Corporation has a higher operating margin C United Corporation has a more lenient accounts receivable policy D United Corporation has a more generous dividend payout ratio
C United Corporation has a more lenient accounts receivable policy
Company A competes with Company B in the same sector. Company A's price to sales ratio is 5, while Company B's is 4. What would explain the difference in value? A Company B uses a more conservative method of accounting B There is a discrepancy with forward sales projections C Each company has a different capital structure D Company A has higher margins
D Company A has higher margins
Which of the following is a cyclical trend that could impact the healthcare industry? A Increased medical costs as a result of an aging population B Increased research costs as a result of changing government regulations C Reduced insurance premiums as a result of the expansion of government insurance D Decrease in the number of insureds as a result of higher unemployment
D Decrease in the number of insureds as a result of higher unemployment
When measuring the value of the company's stock using the discounted dividend method, all of the following statements are TRUE regarding the dividend, EXCEPT: A Dividend streams may remain constant B Dividend streams may grow at a constant rate C Dividend streams may grow at a variable rate D Dividend streams may not be discounted
D Dividend streams may not be discounted
Consumer nondurable companies with a consistent track record would be evaluated on the basis of: A Market share B Debt to total capital C Normalized earnings D Forward P/E ratio
D Forward P/E ratio
Company U has a beta of .65. If the risk-free rate of return increases from 3% to 4%, while the expected market return remains stable, what effect will there be on Company U's WACC? A It will reduce the WACC. B The WACC will not change. C It will have a positive impact on the company's valuation. D It will have a negative impact on the company's valuation.
D It will have a negative impact on the company's valuation.
When measuring the value of the company's stock using the discounted dividend method, each of the following statements is TRUE regarding the dividend, EXCEPT dividend streams may: A Remain constant B Grow at a constant rate C Grow at a variable rate D Not be discounted
D Not be discounted
Which of the following would be reduced if a company declares a stock dividend? A Total assets B Current liabilities C Working capital D Retained earnings
D Retained earnings
When engaged in a comparison of a U.S. company and a foreign company, you notice that both companies have exactly the same EBIT, but the U.S. company has higher net income. This is MOST likely because: A The U.S. company pays higher taxes B The U.S. company has higher depreciation expenses C The foreign company has higher depreciation expenses D The foreign company pays higher taxes
D The foreign company pays higher taxes
When comparing GAAP reporting to tax reporting, which of the following statements is TRUE during the early years of an asset's life? A Depreciation expenses are generally higher under GAAP reporting. B Depreciation expenses are generally lower under tax reporting. C Accelerated depreciation will understate earnings on the report to shareholders. D The use of accelerated depreciation will increase deferred tax liabilities
D The use of accelerated depreciation will increase deferred tax liabilities
The demand schedule for a product being produced by Industry Z indicates that a $20 unit price will correspond to a demand for 50,000 units. At this point on the curve, the coefficient of elasticity is 2. If the industry increases the price for the product, which of the following statements is TRUE? A For each 2% increase in price, there will be a 1% decrease in demand. B For each 1% increase in price, there will be a 5% decrease in demand. C Total revenues will increase. D Total revenues will decrease.
D Total revenues will decrease.
When is it appropriate to use the constant growth dividend model for stock valuation? A When the stock does not pay dividends B When the dividends grow at a variable rate C When the constant growth rate only applies for the first few years D When the required rate of return is greater than the growth rate
D When the required rate of return is greater than the growth rate
Relevant financial information to answer the following question is found by using Exhibit 65. Use the information in the table to rank the companies from LEAST to MOST attractive using the PEG ratio? A V, Y, Z, X, W B W, X, Y, Z, V C V, Y, X, Z, W D W, X, Z, Y, V
D. W, X, Z, Y, V
A company has revenue of $29.39 billion, EBITDA of $7.93 billion, and a P/E ratio of 16.33. Another company is willing to pay 11.50 times EBITDA and can expect $1.04 billion of synergies. What is the adjusted EBITDA multiple? A 3.34 B 6.178 C 13.23 D 10.16
D 10.16
Company BAZ has basic EPS of $2.65 and diluted EPS of $2.20. It pays a quarterly dividend of $.35 and trades at a P/E ratio of 22. What is the dividend yield of the company? A .723% B 16% C 2.4% D 2.9%
D 2.9%
Determine and then select L.R. Gamble's equity turnover ratio. Relevant financial information to answer the following question is found by using Exhibit LRG A 2.94 B 3.44 C 33.82 D 3.17
D 3.17
A corporation has $2,000,000 of earnings after interest, but before taxes, and is in the 34% tax bracket. The corporation can borrow money at the current rate of 6.5%. Excluding all other expenses, if the corporation issues $1,000,000 of 6.5% preferred stock, rather than issuing bonds, what's the pre-tax cost of the preferred shares? A 6.5% B 2.21% C 19.12% D 9.85%
D 9.85%
If an operating lease is compared to a finance lease, which of the following statements is TRUE? A Net liabilities are larger for an operating lease. B Net assets are smaller for an operating lease. C Net income is higher for a finance lease. D Both types of leases increase assets.
D Both types of leases increase assets.
The weighted average cost of capital is an important valuation method for capital budgeting. One of the reasons that firms use this method is that: A Firms raise capital primarily through equity issues B Most firms raise capital through debt issues C Weighted average provides the lowest cost of raising capital D Capital is raised through common and preferred equity as well as debt
D Capital is raised through common and preferred equity as well as debt
Companies A, B, C, and D are large-cap industrials within the same sector. Co. A Co. B Co. C Co. D EPS 3.30, 3.90, 3.10, 2.80 Price 40, 48, 38, 30 Which of the companies listed above is MOST undervalued? A Co. A B Co. B C Co. C D Co. D
D Co. D
If Company A has a lower gross income than Company B, but both companies have the same net income, an analyst would conclude that: QID: 4603279 Mark For Review A Company B has lower revenue B Company B has a lower tax rate C Company A has lower cost of goods sold D Company A has a lower tax rate
D Company A has a lower tax rate
