Question 1

Prospective analysis is the forecasting of future payoffs-typically earnings, cash flows, or both.

Accepted Answer

A) True 
 B)False  True

Question 2

The value of a bond is equal to the sum of the present value of future expected interest and principal payments, discounted at the coupon rate.

Accepted Answer

A) True 
 B)False  False

Question 3

Assets and liabilities at the end of 2005 for Tripod Inc. are $4,970 and $2,220 respectively. Net income and dividends for fiscal 2005 were $500 and $200, respectively. Tripod has 100 shares outstanding as of 12/31/05.Net income is expected to grow at 10% for the next three years (2006-2008). The dividend payout ratio is expected to remain at 2005 level for next three years. After 2005 abnormal earnings are expected to be zero. Cost of debt is 8% and cost of equity is 15%.What would you be prepared to pay per share for Tripod stock at the end of fiscal 2005, using the accounting based equity valuation formula?

Accepted Answer

The answer of Assets and liabilities at the end of...

Question 4

Two popular techniques of comparative analysis are year-to-year change analysis and index-number trend analysis.

Accepted Answer

A) True 
 B)False

Question 5

The SEC requires that Management Discussion and Analysis found in the annual report (10K) contains, among other things, a discussion about the company's liquidity, capital resources, and results of operations.

Accepted Answer

A) True 
 B)False

Question 6

Wilco Company reports the following: Dividend payout ratio for 2005 was:
$\begin{array} { l c c } 
& 2005 & 2004 \
\text { Retained Earnings } & \$ 2,000,000 & \$ 1,300,000 \
\text { Common Stock } & \$ 500,000 & \$ 500,000 \
\text { Paid-in Capital } & \$ 3,000,000 & \$ 3,000,000 \
\text { Net Income for year } & \$ 900,000 & \$ 400,000
\end{array}$

Accepted Answer

A) 27%. 
B) 12%. 
C) 22.2%. 
D) Not determinable 
A) 27%. 
B) 12%. 
C) 22.2%. 
D) Not determinable

Question 7

Below are selected ratios for three companies which operate in three different industries: Discount Retail Store, Drug, and Utility.Identify which industry each of the companies A, B, and C operate in. Give two reasons for each of your selections. $\begin{array} { l l l l } 
\text { Industry } & \text { A } & \text { B } & \text { C } \
\text { COGS/Sales } & 80 \% & 58 \% & \text { n/a } \
\text { R\&D/Sales } & 0 \% & 7 \% & 0.1 \% \
\text { Advertising/Sales } & \text { not defined } & 3 \% & 0.1 \% \
\text { Interest/Sales } & 0.9 \% & 1 \% & 6 \% \
\text { Net Income/Sales } & 2.5 \% & 10 \% & 10 \% \
\text { Return on Assets } & 8.5 \% & 10.6 \% & 7.2 \% \
\text { Inventory Turnover } & 5.5 & 4 & \mathbf { n } / \mathbf { a } \
\text { Accounts Receivable Turnover } & 100 & 6 & 9 \
\text { Long-term Debt/Equity } & 60 \% & 50 \% & 40 \% \
& & &
\end{array}$

$\mathrm{n} / \mathrm{a}=\text { not applicable }$

Identify which industry each of the companies A, B, and C operate in. Give two reasons for each of your selections.

Accepted Answer

Company A is the discount retail store a

Question 8

Which of the following statements is incorrect?

Accepted Answer

A) Current assets are expected to be converted into cash sooner than noncurrent assets. 
B) Equity investors have unlimited downside exposure if the company declares bankruptcy. 
C) Paid-in capital of company is not affected by the payment of dividends. 
D) Retained earnings at the inception of a company equals zero. 
A) Current assets are expected to be converted into cash sooner than noncurrent assets. 
B) Equity investors have unlimited downside exposure if the company declares bankruptcy. 
C) Paid-in capital of company is not affected by the payment of dividends. 
D) Retained earnings at the inception of a company equals zero.

Question 9

Details of compensation paid to officers and directors can be found in proxy statements.

Accepted Answer

A) True 
 B)False

Question 10

Which of the following statements is correct?

Accepted Answer

A) All other things being equal, the more efficiently a company utilizes its assets, the greater will be its return on investment. 
B) All other things being equal, if return on equity increases, the return on assets must have also increased. 
C) All other things being equal, if the number of days inventory held increases, the return on assets will increase. 
D) All other things being equal, if the gross margin decreases, the inventory turnover must have increased. 
A) All other things being equal, the more efficiently a company utilizes its assets, the greater will be its return on investment. 
B) All other things being equal, if return on equity increases, the return on assets must have also increased. 
C) All other things being equal, if the number of days inventory held increases, the return on assets will increase. 
D) All other things being equal, if the gross margin decreases, the inventory turnover must have increased.

Question 11

You have been provided the following information about High Inc. $\begin{array}{lll}\text { (in thousands of dollars) }&2005&2006\
\text { Current assets } & \$ 158 & \$ 163 \
\text { Long-term assets } & \$ 453 & \$ 502 \
\text { Current liabilities } & \$ 102 & \$ 143 \
\text { Long-term liabilities } & \$ 302 & \$ 348 \
\text { Net income } & \$ 32 & \$ 42
\end{array}$
-Current ratio for 2005 is:

Accepted Answer

A) 1.55. 
B) 1.51. 
C) 1.50. 
D) 1.14. 
A) 1.55. 
B) 1.51. 
C) 1.50. 
D) 1.14.

Question 12

Following is some financial information of Dell Inc. $$\begin{array} { l r r } 
& 2006 &  { 2005 } \
\text { Revenues } & \$ 49,205 & \$ 41,444 \
\text { Net income } & 3,043 & 2,645 \
\text { Total assets } & 23,215 & 19,311 \
\text { Shareholder's equity } & 6,485 & 6,280 \
\text { Cash flow from operations } & 5,310 & 3,670 \
\text { Basic earnings per share } & 1.21 & 1.03 \
\text { Book value per share } & 2.61 & 2.46 \
\text { Closing stock price } & 33.44 & 23.86
\end{array}$$
-What is Dell's price-to-earnings ratio for 2006?

Accepted Answer

A) 27.63 
B) 12.81 
C) 23.65 
D) 9.70 
A) 27.63 
B) 12.81 
C) 23.65 
D) 9.70

Question 13

You have been provided the following information about Wert Inc.
$$\begin{array} { l l l } 
\text { (in thousands of dollars) } & 2005 & 2006 \
\text { Sales } & \$ 2,456 & \$ 3,778 \
\text { Net income } & \$ 172 & \$ 202 \
\text { Interest expense } & \$ 50 & \$ 55 \
\text { Total assets } & \$ 1,800 & \$ 1,950 \
\text { Tax rate } & 35 \% & 35 \%
\end{array}$$
Return on assets for 2006 is:

Accepted Answer

A) 13.71%. 
B) 12.68%. 
C) 10.77%. 
D) 13.21%. 
A) 13.71%. 
B) 12.68%. 
C) 10.77%. 
D) 13.21%.

Question 14

A bank with a loan to a company is generally exposed to a greater risk than the shareholders of the company.

Accepted Answer

A) True 
 B)False

Question 15

Given the following information, calculate the inventory turnover for ABC Co. for 2006 (pick closest number). $$\begin{array} { l c c } 
\text { (in thousands of dollars) } & 2006 & 2005 \
\text { Sales } & \$ 19,535 & \$ 15,470 \
\text { Cost of goods sold } & \$ 15,101 & \$ 11,184 \
\text { Inventory } & \$ 2,809 & \$ 2,260
\end{array}$$

Accepted Answer

A) 8.96 
B) 7.22 
C) 6.93 
D) 5.96 
A) 8.96 
B) 7.22 
C) 6.93 
D) 5.96

Question 16

$$\begin{array}{l}
\text { Rivaz Corporation }\
\begin{array} { l r } 
& 2005 \
\text { Net Income } & \$ 3,000 \
\text { Dividends } & \$ 1,000 \
\text { Total Assets } - 12 / 31 / 05 & \$ 35,000 \
\text { Total Liabilities } - 12 / 31 / 05 & \$ 21,225 \
\text { Number of shares outstanding } & 1,000 \
\text { Cost of Equity } & 12 \%
\end{array}
\end{array}$$
-Net income is expected to increase by 10% for the next year, and dividend payout ratio is expected to remain constant. After 2006, retained earnings are expected to decrease to zero. Using the residual income method what is the value per share of Rivaz stock as of 12/31/05?

Accepted Answer

A) $15.25 
B) $15.16 
C) $14.38 
D) $13.77 
A) $15.25 
B) $15.16 
C) $14.38 
D) $13.77

Question 17

Which of the following is not an equity valuation model?

Accepted Answer

A) Residual income model 
B) Dividend discount model 
C) Free cash flow to equity model 
D) Payback period model 
A) Residual income model 
B) Dividend discount model 
C) Free cash flow to equity model 
D) Payback period model

Question 18

Which of the following statements regarding the intrinsic value of a company is correct?

Accepted Answer

A) It can be calculated as book value plus the present value of future expected dividends, discounted at the cost of equity capital. 
B) It can be calculated as present value of future expected dividends, discounted at the cost of debt. 
C) It can be calculated as present value of future expected residual income, discounted at the cost of equity capital. 
D) It can be calculated as book value plus the present value of future expected residual income, discounted at the cost of equity capital. 
A) It can be calculated as book value plus the present value of future expected dividends, discounted at the cost of equity capital. 
B) It can be calculated as present value of future expected dividends, discounted at the cost of debt. 
C) It can be calculated as present value of future expected residual income, discounted at the cost of equity capital. 
D) It can be calculated as book value plus the present value of future expected residual income, discounted at the cost of equity capital.

Question 19

$$\begin{array}{l}
\text { Rivaz Corporation }\
\begin{array} { l r } 
& 2005 \
\text { Net Income } & \$ 3,000 \
\text { Dividends } & \$ 1,000 \
\text { Total Assets } - 12 / 31 / 05 & \$ 35,000 \
\text { Total Liabilities } - 12 / 31 / 05 & \$ 21,225 \
\text { Number of shares outstanding } & 1,000 \
\text { Cost of Equity } & 12 \%
\end{array}
\end{array}$$
-Using the dividend discount model, assuming dividends grow at 10% per year for the next two years and at 5% thereafter, what is the value per share of Rivaz Corporation at 12/31/05?

Accepted Answer

A) $16.61 
B) $16.51 
C) $16.42 
D) $14.87 
A) $16.61 
B) $16.51 
C) $16.42 
D) $14.87

Question 20

Which of the following statistics would be the most useful in determining the efficiency of a car rental company?

Accepted Answer

A) Inventory turnover 
B) Number of employees per car rental 
C) Average length of car rental 
D) Number of days cars are rented as a percentage of number of days available for rent 
A) Inventory turnover 
B) Number of employees per car rental 
C) Average length of car rental 
D) Number of days cars are rented as a percentage of number of days available for rent

Prospective analysis is the forecasting of future payoffs-typically earnings, cash flows, or both.

The value of a bond is equal to the sum of the present value of future expected interest and principal payments, discounted at the coupon rate.

Two popular techniques of comparative analysis are year-to-year change analysis and index-number trend analysis.

The SEC requires that Management Discussion and Analysis found in the annual report (10K) contains, among other things, a discussion about the company's liquidity, capital resources, and results of operations.

Wilco Company reports the following: Dividend payout ratio for 2005 was: 2005 2004 Retained Earnings \ 2,000,000 \ 1,300,000 Common Stock \ 500,000 \ 500,000 Paid-in Capital \ 3,000,000 \ 3,000,000 Net Income for year \ 900,000 \ 400,000

Which of the following statements is incorrect?

Details of compensation paid to officers and directors can be found in proxy statements.

Which of the following statements is correct?

You have been provided the following information about High Inc. (in thousands of dollars) 2005 2006 Current assets \ 158 \ 163 Long-term assets \ 453 \ 502 Current liabilities \ 102 \ 143 Long-term liabilities \ 302 \ 348 Net income \ 32 \ 42 -Current ratio for 2005 is:

You have been provided the following information about Wert Inc. (in thousands of dollars) 2005 2006 Sales \ 2,456 \ 3,778 Net income \ 172 \ 202 Interest expense \ 50 \ 55 Total assets \ 1,800 \ 1,950 Tax rate 35\% 35\% Return on assets for 2006 is:

A bank with a loan to a company is generally exposed to a greater risk than the shareholders of the company.

Given the following information, calculate the inventory turnover for ABC Co. for 2006 (pick closest number). (in thousands of dollars) 2006 2005 Sales \ 19,535 \ 15,470 Cost of goods sold \ 15,101 \ 11,184 Inventory \ 2,809 \ 2,260

Which of the following is not an equity valuation model?

Which of the following statements regarding the intrinsic value of a company is correct?

Which of the following statistics would be the most useful in determining the efficiency of a car rental company?

Financial Reporting and Analysis

Analyzing Financing Activities

Analyzing Investing Activities

Analyzing Investing Activities: Intercorporate Investments

Analyzing Operating Activities

Cash Flow Analysis

Return on Invested Capital and Profitability Analysis

Prospective Analysis

Credit Analysis

Equity Analysis and Valuation

Filters

Exam 1: Overview of Financial Statement Analysis

Prospective analysis is the forecasting of future payoffs-typically earnings, cash flows, or both.

The value of a bond is equal to the sum of the present value of future expected interest and principal payments, discounted at the coupon rate.

Two popular techniques of comparative analysis are year-to-year change analysis and index-number trend analysis.

The SEC requires that Management Discussion and Analysis found in the annual report (10K) contains, among other things, a discussion about the company's liquidity, capital resources, and results of operations.

Wilco Company reports the following: Dividend payout ratio for 2005 was: 2005 2004 Retained Earnings \ 2,000,000 \ 1,300,000 Common Stock \ 500,000 \ 500,000 Paid-in Capital \ 3,000,000 \ 3,000,000 Net Income for year \ 900,000 \ 400,000

Which of the following statements is incorrect?

Details of compensation paid to officers and directors can be found in proxy statements.

Which of the following statements is correct?

You have been provided the following information about High Inc. (in thousands of dollars) 2005 2006 Current assets \ 158 \ 163 Long-term assets \ 453 \ 502 Current liabilities \ 102 \ 143 Long-term liabilities \ 302 \ 348 Net income \ 32 \ 42 -Current ratio for 2005 is:

You have been provided the following information about Wert Inc. (in thousands of dollars) 2005 2006 Sales \ 2,456 \ 3,778 Net income \ 172 \ 202 Interest expense \ 50 \ 55 Total assets \ 1,800 \ 1,950 Tax rate 35\% 35\% Return on assets for 2006 is:

A bank with a loan to a company is generally exposed to a greater risk than the shareholders of the company.

Given the following information, calculate the inventory turnover for ABC Co. for 2006 (pick closest number). (in thousands of dollars) 2006 2005 Sales \ 19,535 \ 15,470 Cost of goods sold \ 15,101 \ 11,184 Inventory \ 2,809 \ 2,260

Which of the following is not an equity valuation model?

Which of the following statements regarding the intrinsic value of a company is correct?

Which of the following statistics would be the most useful in determining the efficiency of a car rental company?

Financial Reporting and Analysis

Analyzing Financing Activities

Analyzing Investing Activities

Analyzing Investing Activities: Intercorporate Investments

Analyzing Operating Activities

Cash Flow Analysis

Return on Invested Capital and Profitability Analysis

Prospective Analysis

Credit Analysis

Equity Analysis and Valuation

Filters