Deck 14: Comprehensive Case Study: Wal-Mart Stores,inc

Question 1

In the viewpoint of analysts the largest market-related threat to Walmart is:

A)the threat of new entrants.
B)the intensity of rivalries.
C)the threat of substitute products.
D)the bargaining power of suppliers.

Answer 1

B

Question 2

An increase in consumer confidence is particularly important for a retail firm such as Walmart.

Answer 2

True

Question 3

As of 2012,the greatest threat to Walmart appeared to be in the ________ segment.

A)online business
B)grocery
C)drug retailing
D)general merchandise

Answer 3

A

Question 4

Which of the following is NOT a factor that would be analyzed by a firm as part of an external SWOT analysis?

A)Expected inflation
B)Expected growth of firm-wide sales
C)Expected changes in GDP
D)Political uncertainty

Question 5

Walmart has a significant sales presence in:

A)discount retail sales.
B)Internet sales.
C)grocery stores.
D)All of the above.

Question 6

Which of the following statements is NOT true?

A)A firm's pricing strategy affects its profitability.
B)Management of cash flows is crucial to efficient operations.
C)Capital expenditures are required to maintain facilities and provide growth.
D)All of the above are true.

Question 7

With the death in 1992 of Sam Walton,the founder of Walmart,the Walton Family influence:

A)today is nonexistent.
B)is minimal despite having a family member on the board of directors.
C)remains strong with family control of just under 50% ownership.
D)None of the above.

Question 8

At the end of fiscal year 2012 (January 31,2012)Walmart sales came primarily from three divisions.In order from the greatest sales to least,those divisions are:

A)U.S.discount and grocery operations,membership warehouse operations.,and Walmart International operations.
B)Walmart International operations,membership warehouse operations,and U.S.discount and grocery operations.
C)membership warehouse operations,U.S.discount an grocery operations,and Walmart International operations.
D)U.S.discount an grocery operations,Walmart International operations,and membership warehouse operations.

Question 9

Analysts expect retail sales to grow ________ the general economy and Internet sales to grow ________ the general economy.

A)more rapidly than; less rapidly than
B)less rapidly than; at the same rate as
C)at the same rate as; more rapidly than
D)more rapidly than; more rapidly than

Question 10

In Fortune magazine's 2012 list of "most admired companies",Walmart ranked in the top ________ firms.

A)25
B)50
C)100
D)500

Question 11

In the years following the Great Recession (2007-2009)growth in the United States economy was ________ the rate of inflation.

A)less than
B)equal to
C)greater than
D)These two measures were unknown due to high federal government deficit.

Question 12

A SWOT financial analysis of a publicly traded firm generally begins by looking at ________ factors before turning to examine ________ factors.

A)external;internal
B)internal; external
C)asset; liability and equity
D)capital structure; capital budgeting

Question 13

The long-run overall outlook for growth in the retail segment of the economy is ________ the economy as a whole.

A)equal to
B)less than
C)greater than
D)this question was not addressed by the author.

Question 14

Which of the following was NOT identified as part of Walmart's strategy for improving shareholder value?

A)growth
B)leverage
C)return
D)All of the above were identified.

Question 15

In the years immediately following the Great Recession of 2007 - 2009,consumer confidence generally increased.

Question 16

Generally,an economic SWOT analysis will move in this direction:

A)the industry outlook to the broad economy to firm specific information and finally individual store sales.
B)the broad economy to the industry outlook to firm specific information and finally individual store sales.
C)the industry outlook to the broad economy to individual store sales and finally to firm specific information.
D)the broad economy to the industry outlook to individual store sales and finally to firm specific information.

Question 17

Walmart's operating strategy is to be the lowest-cost,lowest-priced competitor in the industry.

Question 18

Following the recession of 2007 - 2009,yield curves for interest rates the United States were ________,and overall,rates were beneficial for ________.

A)sharply downward sloping; lenders
B)sharply downward sloping; borrowers
C)sharply upward sloping; lenders
D)sharply upward sloping; borrowers

Question 19

The author present information that suggests that there is little threat of new entrants in the retail industry.

Question 20

To succeed in the retail industry,firms like Walmart need to strive to be the lowest cost producer,or they must somehow differentiate their products.

Question 21

Because book value entries are historical rather than forward-looking,the market value version of a firm's balance sheet must be greater than the book value version.

Question 22

Use the information provided to complete the pro forma 2013 income statement in table 14-1.

Question 23

Financial theory suggests and empirical evidence supports the idea that firms have a"pecking order" by which they choose to raise funds to finance assets.From the first source of financing to the last this pecking order is:

A)internally generated funds,debt,and new equity.
B)debt,internally generated funds,and equity.
C)equity,debt,and internally generated funds.
D)None of the above,there is no such preference.

Question 24

AS of 2012,the Internet appears to be Walmart's greatest retail sale competitive advantage over it 's competitors.

Question 25

In 2012,Walmart bought back over 100 million shares of stock.

Question 26

Rogue River Retail Inc.has a before-tax cost of debt of 8.00%,a cost of equity of 12.00%,a tax rate of 30.00% and no preferred stock outstanding.If the firm is made up of 50% debt and 50% equity,what is the firm's after-tax cost of borrowing?

A)12.00%
B)11.60%
C)8.00%
D)5.60%

Question 27

You have hired a financial consultant to help you develop pro forma financial statements.She projects accounts receivable as "7 days of net sales." The projected information belongs on the ________ and you need information from the ________ to estimate the dollar value.

A)balance sheet; income statement
B)balance sheet; balance sheet
C)income statement; income statement
D)income statement; balance sheet

Question 28

Investments in property and equipment are ________ predictable than investments in acquisitions,which tend to be ________ opportunistic.

A)more; less
B)more; more
C)less; more
D)less; less

Question 29

A firm cannot buy back stock AND increase dividends at the same time.

Question 30

Bellview Broadcasting Inc.generates greater cash flows than necessary to continue operations.As a result,the firm could choose to:

A)increase dividends.
B)buy back outstanding shares of stock.
C)make acquisitions consistent with their mission and vision.
D)All of the above.

Question 31

The ________ reflects the minimum return investors (and lenders)require,and it is a key driver of the overall value of a firm.

A)cost of equity
B)cost of debt
C)cost of capital
D)required return on debt

Question 32

Assess the economic conditions facing U.S.firms in 2012.In you assessment,be sure to address the economy-wide recovery from the recession of 2007-2009,inflationary expectations,the political situation,expected economic growth,and consumer confidence.

Question 33

Depreciation expense is found on the ________ and accumulated depreciation is found on the ________.

A)income statement; income statement.
B)balance sheet; income statement.
C)income statement; balance sheet.
D)balance sheet; balance sheet.

Question 34

What were the industry conditions facing Walmart at the beginning of 2012? Specifically,identify and comment about expectations for the sources for increasing revenues,concerns about costs,expectations for online sales,and where the retail industry was situated from a life-cycle perspective.You DO NOT need to address Porter's Five Forces model in this question.

Question 35

Marvelous at the Mall Inc.has a before-tax cost of debt of 8.00%,but the risk-free rate is only 3.00%.If the market risk premium for equity is 6.00% and the firm has a beta of 1.25,what is the required return on equity for the firm?

A)10.50%
B)11.00%
C)11.50%
D)12.00%

Question 36

Global Outlets Inc.expects profits to grow in line with revenues.Which of the following statements about efficiency and leverage would then be consistent with no change in ROE as a result of the growth in profitability?

A)No change in asset efficiency and an increase in leverage.
B)No change in asset efficiency and no change in leverage.
C)An increase in asset efficiency and no change in leverage.
D)An increase in asset efficiency and an increase in leverage.

Question 37

Assess Porter's Five Forces for the Retail industry as they applied to Walmart at the beginning of 2012.The Five Forces are: 1.the threat of new entrants,2.The bargaining power of customers,3.The threat of substitutes,4.The bargaining power of suppliers,and 5.The intensity of rivalries.

Question 38

If a firm is projected to increases revenues by 10% AND net income by the same amount,which of the following must be true?

A)There can be no variable costs.
B)There can be no fixed costs
C)There can be no taxes.
D)The change in expenses must be exactly equal to the change in revenues.

Question 39

For purposes of liquidity,it is better to have a negative net working capital.

Question 40

On the pro forma income statement,"property and equipment" should include any change in management's anticipated capital expenditures.

Question 41

Which of the following is likely to lead to an increase in a firm's cost of debt financing?

A)An increase in expected inflation.
B)An increase in the riskiness of assets.
C)An increase in the average age of debt financing.
D)All of the above.

Question 42

An acceptable project must exceed the firm's cost of debt but not necessarily it's cost of capital.

Question 43

We present several valuation techniques for publicly traded firms.Which technique will provide the highest value for a firm?

A)Discounted cash flow techniques
B)Market value techniques
C)A comparable analysis technique using an EBITDA multiple
D)It is not clear which of these techniques would yield the highest estimated value of a firm.

Question 44

Which of the following statements is TRUE?

A)V_E = EV₀ + V_D - value of other claims
B)V_E = EV₀ + V_D + value of other claims
C)V_E = EV₀ - V_D - value of other claims
D)V_E = EV₀ -V_D + value of other claims

Question 45

Count On It Marketing Inc.has an ROCE of 21%,a WACC of 9.35%,and invested capital of $250,000.With this information estimate the firm's economic value added (EVA).

A)$24,639
B)$29,125
C)$41,621
D)There is not enough information to answer this question.

Question 46

Mallory Market Inc.relies on external debt financing and internally generated retained earnings to finance new projects.This is an unsustainable model because:

A)the firm cannot rely on outside financing to fund new projects.
B)too much debt will lead to too much equity held by outside creditors.
C)with no new stockholders the firm must eventually fail.
D)This is NOT an unsustainable model.

Question 47

Arrow Corp.has a WACC of 8.78%,a before-tax cost of debt of 6%,and a tax rate of 40%.If the firm is financed 30% with debt and the balance with equity,what is the cost of equity?

A)10.50%
B)11.00%
C)11.50%
D)12.00%

Question 48

Determine the WACC for Cranston Retail Inc.the firm has a before-tax cost of debt of 6.50%,a cost of equity of 11.50%,and a tax rate of 30.00%.The firm finances 40% of its assets with debt and 60% with equity.Further the risk-free rate is 3.00% and the firm has a beta of 1.20.

A)8.15%
B)8.72%
C)9.06%
D)10.14%

Question 49

Rocky Mountain Drilling Inc.has a new shale oil field under development.The firm estimates free cash flows to the firm (FCFF)of $2,000,000 at the end of one year and increases of 20% per year for each of the next two years,and then year-end fcff of $3,000,000 per year for five years before exhausting the oil in the field.If the firm has a WACC of 12.5%,what is the value today of these expected cash flows?

A)$8,485,936
B)$10,817,300
C)$13,198,893
D)$20,280,000

Question 50

Discounted cash flow analysis is a valuation technique that:

A)estimates the present value of expected future cash flows.
B)uses comparable firms in the industry to project a market value of the firm.
C)uses multiples of earnings to project a price per share.
D)is the only accepted form of firm valuation by the American Society of Certified Public Accountants.

Question 51

Pulse Plastics Inc.realized a decrease in net plant and equipment from last year's balance sheet to this year.If the firm did not sell or salvage any existing plant and equipment,which of the following statements MUST be true?

A)The firm made no additional plant and equipment purchases.
B)The firm's plant and equipment is an income statement entry not a balance sheet entry.This is a trick question!
C)Depreciation expense must exceed the addition to accumulated retained earnings.
D)Depreciation expense exceeded the value of new plant and equipment purchases.

Question 52

Within a firm,the required return on debt must be less than the required return on equity.

Question 53

Conglomicorp Inc.has 10.5 million shares of stock outstanding with a book value of $25 per share and a market value of $93 per share.The firm also has $40 million in retained earnings and a required rate of return of 8%.What is the current market capitalization for the firm?

A)$904,166,667
B)$976,500,000
C)$1,097,820,000
D)$1,016,500,000

Question 54

Growing firms should be able to rely on internally generated funds since external funding is expensive and unreliable.

Question 55

In 2012 Advantage Cable Inc.had $250,000 in invested capital,a WACC of 9.35%,EBIT of $75,000,and a tax rate of 30%.With this information please estimate the economic value added (EVA)for the firm.

A)$29,125
B)$23,375
C)$52,500
D)There is not enough information to answer this question.

Question 56

Which of the following could be a method for Walmart to increase value for shareholders?

A)Put greater effort into controlling costs.
B)Increase the rate of profitable growth.
C)Reduce the cost of financing.
D)All of the above.

Question 57

A reasonable growth strategy may be to plan for new investments while maintaining financial flexibility to fund opportunistic acquisitions.

Question 58

Generating reasonable assumptions is one of the most critical aspects of pro forma analysis.

Question 59

Net operating profit after taxes (NOPAT)is equal to:

A)EBITDA * (1 - tax rate).
B)EBITDA * (1 + tax rate).
C)EBIT * (1 - tax rate).
D)EBIT * (1 + tax rate).

Question 60

________ is a period measure that attempts to capture a firm's ability to add value for shareholders,after accounting for the requirements of other stakeholders.

A)Economic Value Added
B)Discounted cash flow analysis
C)Price-Earnings measure
D)All of the above.

Question 61

Having a positive market value added (MVA)would suggest that a firm has been investing in negative net present value projects.