MBAA518 FULL COURSE (ALL ASSIGNMENTS, DISCUSSIONS, QUIZES, PROBLEM SETS)

EMBERY MBAA 518 2.4 – Asignment: Financial Ratios

 

 

MBAA 518 – Managerial Finance 1

Financial Ratios Assignment and Research Activity

Note:This activity will be submitted as Activity 2.4. However, it is recommended you begin to start work on this activity in Module 1. Most of the content necessary to complete the assignment is provide in Module1. Submission of the assignment will occur in Module 2.

This assignment will require you to perform some analysis of financial ratios and some research to further your understanding of financial ratios from other sources. You will select an industry and two firms within the industry as described below and analyze the Return on Equity (ROE) of both firms and the market valuation ratios.

To retrieve the data you will need to do the following steps:

  1. Go to the Hunt Library website
  1. Select the “Articles” tab (Databases)
  1. Select “List All Research Databases”
  1. Select “S” in the alphabetical tabs
  1. Select “Standard and Poor’s Industry Surveys (S&P NetAdvantage)”
  1. There are several different reports that can be found here.

For this assignment you will be looking at a number of ratios for a firm and comparing to industry averages.

To get information on the industry, you can use the Industry Surveys, click on the dropdown menu, then select the industry you are interested in, and then click the gold colored box with the play button in the box. There are a number of reports here and also a number of different reports.

The report will come up in the html format which is (in my opinion) the least useful. The PDF format provides a very good easy to use/read report with a large amount of information about the industry.If you click on Downloadable Company Data an excel spreadsheet will be available for firms in the industry.

The excel spreadsheet (Downloadable Company Data) includes a number of tabs each with different information of each of the firms some of which are ratios. Here you can get a quick overview of how a given firm is performing relative to peers; you could quickly calculate some averages for the industry etc. This could be helpful for use as you analyze projects, need an estimate for a similar project etc.

For this assignment we are going to focus on one ratio which can actually be calculated using three other ratios. That ratio is the Return on Equity. Return on Equity can be calculated in the following manor:

May 2015

 

MBAA 518 – Managerial Finance 2

 

ROE = net profit margin x asset turnover / equity ratio
= earnings to owners x revenues / common equity
revenues assets assets
= earnings to owners x revenues x assets
revenues assets common equity

look at what cancels and you are left with

earnings/equity which is ROE ROE is comprised of:

Profit Margin (bottom line)

Turnover (asset utilization)

Equity ratio (financial cushion)

A note on equity ratio: (equity/assets)

Say a firm had $100 in assets and $37 dollars in equity The equity ratio would be 37/100 or 0.37

What does that mean? How can a firm be financed?

How much came from equity (owners)? How much from creditors?

In this case for every dollar of assets, owner have funded 0.37 cents and creditors 0.63 cents.

The second set of ratios you will need to consider are market value ratios. How does the firm you selected compare to industry averages, main competitor(s) etc.

For this assignment, you will need to select an industry using the S&P Net advantage database and download the data. Select two firms one with a relatively high ROE and one with a relatively low ROE in the industry. Analyze each of the firms taking into consideration the components of ROE as identified above. This will require you to do some additional research regarding ROE analysis.

The information you will need is not all here or in the textbook. There are times in the workplace where you will be performing or asked to perform tasks that require some learning/teaching yourself. This assignment will require you to do that.

May 2015

 

MBAA 518 – Managerial Finance 3

Hints:You may want to look at each of the components of ROE and compare those. You maywant to look up (another book, online, etc) DuPont Identity or DuPont Analysis. Realize the components you need to analyze may or may not be in the spreadsheet you download form net advantage. If not find what you need but make sure you document where you find any data used. (Yahoo finance is a good site and there are others.)

Some thoughts to keep in mind:

Marginsreflect the firm’s production function. If margins are low what could be done toimprove them?

Total asset turnoverdeals with the marketing function. If turnovers are low what mighta firm wish to consider to improve its performance?

Equity ratiois the finance province. Issues to consider are if you are being tooconservative (not employing enough cheap debt)?

For your deliverable:

Include the downloaded industry spreadsheet for the industry you selected.

Identify the firms you selected within the spreadsheet by changing the color of the font for that firm on each tab to red.

Prepare a table that calculates the ROE for each firm using the three components. Make sure each column is labeled. (You should have columns that are labeled ROE, Net Profit Margin, Asset Turnover, Equity Ratio) Create a similar table for the market value measures.

Write a brief paper; about two pages maximum (2 plus/minus a half page). Paper should address the reasons why one firm has a high ROE, why one firm has a low ROE and what could be done to improve the lower performing firm based on ROE (if it is really performing at a lower level). Perform similar contrast and comparisons for the market value ratios.

Be sure to address issues such as marketing, asset utilization, financing and if your chosen firm appears to be under or overvalued.

May 2015

 

 

 

 

 

 

EMBERY MBAA 518 4.5 – Assignment: Valuation of Stock

MBAA 518 – Managerial Finance Activity 3.5 (Due in Activity 4.5)

Valuation of Stock using PE ratios

Note:This activity will be submitted as Activity 4.5. However, it is recommended you begin to startwork on this activity in Module 3. Most of the content necessary to complete the assignment is provide in Module 3.

Submission of the assignment will occur in Module 4.

There is also a discussion question in activity 4.6 related to this assignment.

For this activity, you will need to select a publicly traded firm and a major competitor. Firms from any industry can be used.

Go to reuters.com and for the firm you have selected obtain the trailing twelve-month P/E ratio for the firm, industry, and sector. (You can use other sources if you wish)

Use information about your company’s earnings and industry and sector’s P/E s based on the P/E ratio value your selected firm as indicated in the example. If there is no earnings estimate, or the earnings estimate is negative, use earnings for a previous year. If that’s also negative, pick another company for this assignment. There is an example of a partially completed table found here.Note:the example is only complete for one of thetwo firms indicated. Your submission must include the data for both firms. Boeing’s data is included; therefore, Boeing cannot be used by any student. Lockheed-Martin is indicated as a competitor but no information is provided. Lockheed-Martin could still be used.

Once you have completed the above write a short report discussing the valuation of your selected firm and competitor. Note if the current price is very close to “Estimated share price based on TTM P/E and Earnings past 12 months.” This should be very close if not you have likely done something wrong. How does the valuation of your firm compare to that of the competitors based on the P/E ratio? Why might this be the case? How does you firm’s current price compare to the estimated price using the industry and sector P/E’s compare both for the TTM and estimated year end? Is it higher or lower? Why might that be (provide one rational reason why)? Based on simple analysis which of the two firms (your selected firm and its competitor) appears to be undervalued? Why did you draw that conclusion? What do you suspect is the reason?

Your submission will only need to be a single page to page and a half formatted with single-spaced, Times New Roman, 12 point font. Include a citation for where you retrieved the data and the date retrieved. A table following the example must be included in your submission but is not considered as part of the page to page and a half write-up. Get to the point in your write-up. There is no need for extra “baggage.”

 

May 2015 1

 

 

 

EMBERY MBAA 518 8.5 – Assignment: Payout Strategy

In the supplemental readings you saw some examples of firms that have announced dividends, stock splits, and reverse stock splits. The assigned research paper reading looked at firm’s decisions and what factors appear to affect payout decisions. For this activity you will write a short one page to one and a half page paper on a firm of your choosing meeting the following criteria:

Publicly traded
You can provide a link to the firm’s profile and financial summary (similar to what can be found inYahoo finance (Links to an external site.)).Note:this can be other websites and non U.S. stocks can be used as well

An announcement that a firm has split, repurchased, dividend, or other payout discussed in the module’s readings in the past 3 months. The announcement could include the announcement of a firm cancelling their dividend payments as well as the various payouts.

For the selected firm provide a brief profile of the firm including the primary businesses/industry of the firm. Provide an overview of the industry. Address issues such as whether the firm is considered being in a growth industry, mature industry and the role/impact your firm has on the industry.

Discuss the payout strategy selected by your firm. What did the firm announce? Why did the firm make the announcement? Based on your study of dividends and other payouts does the strategy make sense? What signals is management sending with the announcement? Do you agree with the decision? As a shareholder would you be pleased with the announcement? Why or why not?

This activity is due at the end of the module week. Attach the announcement to your submission.
Please save your file using the following naming convention:LastName_FirstName_PayOut_Strategy.docx

 

 

 

 

 

 

 

EMBERY MBAA 518 8.6 – Final Paper

MBAA 518 – Managerial Finance 1

 

 

In Module 8, you will submit your Final Paper:

 

For your final project you will write a short concise stock recommendation report for a firm in which you would recommend as a buy. You are correct that this is not an investments class but as you take a look at the examples provided you will see the application of various topics studied in this course. You will see ratios discussed, discounted cash flow valuation applied, growth opportunities analyzed and ultimately whether or not the investment opportunity is one that should be pursued. This investment opportunity and determining the risk, reward and valuation all are discussed throughout this course.

 

Your paper will be in the range of 2 to 3 pages formatted similarly to the examples provided. References must be included and those should be referenced using the latest APA guidelines.

 

The examples are not all the same but there are some common themes. Most include a brief discussion of the industry and industry outlook and where the firm being analyzed stands and performs in the industry. You will not that ratio analysis is often used but the ratios may vary by industry. In other words the key ratios used to analyze firms in industry “A” are not the same ratios used to analyze firms in industry “B”.

 

Valuation is often considered using more than one method. Discounted cash flows may be used in conjunction with an appropriate ratio (again the ratio likely varies across industry). How does the current share price compare to what your analysis values the stock?

 

Risk, growth potential, payout policy, and other factors are other items that may be discussed in the reports. These all play a role in analyzing a firm and may signal management’s belief on future value of the firm. Those may be items you will want to discuss in your report. Do not forget the threats that the firm faces as well. There is no firm that does not face competition. Those threats should be considered. You have been provided with a list of supplemental sources in the course content. This includes sources available through the Hunt Library one of which is S&P Net Advantage. S&P Net Advantage provides some very useful industry reports which may help you determine how firms in a particular industry are analyzed. There are other sources you can feel free to use as well.

 

The big question is why buy the stock you have selected. You do not have a lot of space to complete this project. You will need to be concise and to the point in your writing. Provide tables as you see fit and other graphs/charts that support you position. Note, the examples may include recommendations to buy, sell, or hold. Your report must be for an opportunity you believe is a buy.

 

Note on the examples: Value Line has a very unique format. The data is there is some discussion of key factors. The other example(s) better reflect what your submission should be similar to.

 

When submitting your Word document using the following naming convention: lastname_firstinitial_MBAA 518_firmticker_final_project.

 

(example: Jones_M_MBAA 518_firmticker_final_project.docx)

 

Font size should be no smaller than 10 nor larger than 12 point font. Headings should be bold (not a larger font). Again, be concise; you do not have room for a lot of “fluff.”

 

 

 

May 2015

 

MBAA 518 – Managerial Finance 2

 

 

 

Examples can be found at these links:

 

ValueLine.MSFT

 

Mergent.WebReports.MSFT

 

Please note that these links are through the Hunt Library, so you may need to log in with your ERNIE username and password.

 

 

 

 

 

 

 

MBAA 518 – 1.4 – Readings and Videos Quiz 1

 

 

 

Question 1

2 / 2 pts

The corporate document that sets forth the business purpose of a firm is the:

state tax agreement.

corporate bylaws.

articles of incorporation.

indenture contract.

debt charter.

Question 2

2 / 2 pts

Agency costs refer to:

the total dividends paid to stockholders over the lifetime of a firm.

the costs that result from default and bankruptcy of a firm.

the costs of any conflicts of interest between stockholders and management.

the total interest paid to creditors over the lifetime of the firm.

corporate income subject to double taxation.

Question 3

2 / 2 pts

Which one of the following is a capital budgeting decision?

Deciding when to repay a long-term debt

Determining how much debt should be borrowed from a particular lender

Determining how much money should be kept in the checking account

Determining how much inventory to keep on hand

Deciding whether or not to open a new store

Question 4

2 / 2 pts

Which one of the following statements is correct?

Both partnerships and corporations incur double taxation.

Both partnerships and corporations have limited liability for general partners and shareholders.

Both sole proprietorships and partnerships are taxed in a similar fashion.

All types of business formations have limited lives.

Partnerships are the most complicated type of business to form.

Question 5

2 / 2 pts

The rules by which corporations govern themselves are called:

bylaws.

articles of incorporation.

indenture provisions.

indemnity provisions.

charter agreements.

Question 6

2 / 2 pts

The decisions made by financial managers should all be ones which increase the:

financial distress of the firm.

marketability of the managers.

size of the firm.

market value of the existing owners’ equity.

growth rate of the firm.

Question 7

2 / 2 pts

The process of planning and managing a firm’s long-term investments is called:

working capital management.

capital structure.

capital budgeting.

agency cost analysis.

financial depreciation.

Question 8

2 / 2 pts

A conflict of interest between the stockholders and management of a firm is called:

stockholders’ liability.

corporate breakdown.

corporate activism.

legal liability.

the agency problem.

Question 9

2 / 2 pts

Which one of the following assets is generally the most liquid?

patents

equipment

accounts receivable

buildings

inventory

Question 10

2 / 2 pts

Which equality is the basis for the balance sheet?

Assets = Liabilities + Stockholder’s Equity

Assets = Current Long-Term Debt + Retained Earnings

None of these

Fixed Assets = Liabilities + Stockholder’s Equity

Fixed Assets = Stockholder’s Equity + Current Assets

Question 11

2 / 2 pts

_____ refers to the firm’s dividend payments less any net new equity raised.

Capital spending

Operating cash flow

Cash flow from creditors

Net working capital

Cash flow to stockholders

Question 12

2 / 2 pts

An increase in total assets:

must be offset by an equal increase in liabilities and shareholders’ equity.

can only occur when a firm has positive net income.

means that shareholders’ equity must also increase.

means that net working capital is also increasing.

requires an investment in fixed assets.

Question 13

2 / 2 pts

Depreciation:

decreases net fixed assets, net income, and operating cash flows.

is a non-cash expense which increases the net operating income.

increases the net fixed assets as shown on the balance sheet.

is a noncash expense that is recorded on the income statement.

reduces both the net fixed assets and the costs of a firm.

Question 14

2 / 2 pts

_____ refers to the cash flow that results from the firm’s ongoing, normal business activities.

Cash flow from operating activities

Capital spending

Net working capital

Cash flow from assets

Cash flow to creditors

Question 15

2 / 2 pts

Liquidity is:

equal to the market value of a firm’s total assets minus its current liabilities.

equal to current assets minus current liabilities.

a measure of the use of debt in a firm’s capital structure.

valuable to a firm even though liquid assets tend to be less profitable to own.

generally associated with intangible assets.

Question 16

2 / 2 pts

The financial statement summarizing a firm’s accounting performance over a period of time is the:

shareholders’ equity sheet.

balance sheet.

income statement.

statement of cash flows.

tax reconciliation statement.

Question 17

2 / 2 pts

One of the reasons why cash flow analysis is popular is because:

None of these.

cash flows are more subjective than net income.

it is easy to manipulate, or spin the cash flows.

it is difficult to manipulate, or spin the cash flows.

cash flows are hard to understand.

Question 18

2 / 2 pts

The higher the inventory turnover measure, the:

greater the amount of inventory held by a firm.

faster a firm sells its inventory.

longer it takes a firm to sell its inventory.

lesser the amount of inventory held by a firm.

faster a firm collects payment on its sales.

Question 19

2 / 2 pts

One key reason a long-term financial plan is developed is because:

None of these.

the plan determines your financial policy.

there are direct connections between achievable corporate growth and the financial policy.

the plan determines your investment policy.

there is unlimited growth possible in a well-developed financial plan.

Question 20

2 / 2 pts

If shareholders want to know how much profit a firm is making on their entire investment in the firm, the shareholders should look at the:

equity multiplier.

return on assets.

earnings per share.

profit margin.

return on equity.

Question 21

2 / 2 pts

Financial ratios that measure a firm’s ability to pay its bills over the short run without undue stress are known as _____ ratios.

market value

short-term solvency

long-term solvency

profitability

asset management

Question 22

2 / 2 pts

Which one of the following statements is correct concerning ratio analysis?

Ratios do not address the problem of size differences among firms.

A single ratio is often computed differently by different individuals.

Only a very limited number of ratios can be used for analytical purposes.

Ratios cannot be used for comparison purposes over periods of time.

Each ratio has a specific formula that is used consistently by all analysts.

Question 23

2 / 2 pts

Which of the following are liquidity ratios?

I. cash coverage ratio

II. current ratio

III. quick ratio

IV. inventory turnover

I and II only

II, III, and IV only

I, III, and IV only

I, II, III, and IV

II and III only

Question 24

2 / 2 pts

Which one of the following sets of ratios applies most directly to shareholders?

Market-to-book ratio and price-earnings ratio

Quick ratio and times interest earned

Return on assets and profit margin

Price-earnings ratio and debt-equity ratio

Cash coverage ratio and times equity multiplier

Question 25

2 / 2 pts

Which two of the following represent the most effective methods of directly evaluating the financial performance of a firm?

I. comparing the current financial ratios to those of the same firm from prior time periods

II. comparing a firm’s financial ratios to those of other firms in the firm’s peer group who have similar operations

III. comparing the financial statements of the firm to the financial statements of similar firms operating in other countries

IV. comparing the financial ratios of the firm to the average ratios of all firms located in the same geographic area

II and III only

III and IV only

I and II only

I and III only

I and IV only

 

 

 

MBAA 518 – 2.3 – Readings and Videos Quiz 2

Question 1

2 / 2 pts

Which one of the following statements concerning the annual percentage rate is correct?

The rate of interest you actually pay on a loan is called the annual percentage rate.

The effective annual rate is lower than the annual percentage rate when an interest rate is compounded quarterly.

The annual percentage rate considers interest on interest.

The annual percentage rate equals the effective annual rate when the rate on an account is designated as simple interest.

When firms advertise the annual percentage rate they are violating U.S. truth-in-lending laws.

Question 2

2 / 2 pts

Paying off long-term debt by making installment payments is called:

funding the debt.

foreclosing on the debt.

calling the debt.

amortizing the debt.

None of these.

Question 3

2 / 2 pts

An annuity stream of cash flow payments is a set of:

increasing cash flows occurring each time period forever.

level cash flows occurring each time period for a fixed length of time.

arbitrary cash flows occurring each time period for no more than 10 years.

increasing cash flows occurring each time period for a fixed length of time.

level cash flows occurring each time period forever.

Question 4

2 / 2 pts

Which of the following statements concerning the effective annual rate are correct?

I. When making financial decisions, you should compare effective annual rates rather than annual percentage rates.

II. The more frequently interest is compounded, the higher the effective annual rate.

III. A quoted rate of 6% compounded continuously has a higher effective annual rate than if the rate were compounded daily.

IV. When borrowing and choosing which loan to accept, you should select the offer with the highest effective annual rate.

I, II, and III only

I, II, III, and IV

I and II only

I and IV only

II, III, and IV only

Question 5

2 / 2 pts

A perpetuity differs from an annuity because:

annuity payments never cease.

perpetuity payments vary with the market rate of interest.

perpetuity payments vary with the rate of inflation.

perpetuity payments are variable while annuity payments are constant.

perpetuity payments never cease.

Question 6

2 / 2 pts

An annuity stream where the payments occur forever is called a(n):

perpetuity.

annuity due.

amortization table.

indemnity.

amortized cash flow stream.

Question 7

2 / 2 pts

You are comparing two annuities which offer monthly payments for ten years. Both annuities are identical with the exception of the payment dates. Annuity A pays on the first of each month while annuity B pays on the last day of each month. Which one of the following statements is correct concerning these two annuities?

Both annuities are of equal value today.

Annuity B is an annuity due.

Annuity A has a higher future value than annuity B.

Annuity B has a higher present value than annuity A.

Both annuities have the same future value as of ten years from today.

Question 8

2 / 2 pts

The time value of money concept can be defined as:

None of these.

the relationship between a dollar to be received in the future and a dollar today.

the relationship between money spent versus money received.

the relationship between interest rate stated and amount paid.

the relationship between the supply and demand of money.

Question 9

2 / 2 pts

The present value of future cash flows minus initial cost is called:

the future value of the project.

the net present value of the project.

the initial investment risk equivalent value.

the equivalent sum of the investment.

None of these.

Question 10

2 / 2 pts

An annuity:

is a stream of payments that varies with current market interest rates.

None of these.

has no value.

is a level stream of equal payments through time.

is a debt instrument that pays no interest.

Question 11

2 / 2 pts

If its yield to maturity is less than its coupon rate, a bond will sell at a _____, and increases in market interest rates will _____.

None of these

premium; decrease this premium

discount; decrease this discount

discount; increase this discount

premium; increase this premium

Question 12

2 / 2 pts

The _____ premium is that portion of a nominal interest rate or bond yield that represents compensation for expected future overall price appreciation.

inflation

default risk

taxability

liquidity

interest rate risk

Question 13

2 / 2 pts

One basis point is equal to:

.01%.

10%.

100%.

1.0%.

.10%.

IncorrectQuestion 14

0 / 2 pts

The yield to maturity is:

the rate that is used to determine the market price of the bond.

the expected rate to be earned if held to maturity.

All of these.

the rate that equates the price of the bond with the discounted cash flows.

equal to the current yield for bonds priced at par.

Question 15

2 / 2 pts

The annual coupon of a bond divided by its face value is called the bond’s:

coupon.

coupon rate.

maturity.

face value.

yield to maturity.

Question 16

2 / 2 pts

A bond with a face value of $1,000 that sells for less than $1,000 in the market is called a _____ bond.

premium

par

discount

floating rate

zero coupon

Question 17

2 / 2 pts

The Fisher Effect primarily emphasizes the effects of _____ risk on an investor’s rate of return.

market

inflation

interest rate

default

maturity

Question 18

2 / 2 pts

The rate of return required by investors in the market for owning a bond is called the:

yield to maturity.

maturity.

coupon rate.

face value.

coupon.

Question 19

2 / 2 pts

The relationship between nominal rates, real rates, and inflation is known as the:

Miller and Modigliani theorem.

Gordon growth model.

Fisher effect.

term structure of interest rates.

interest rate risk premium.

IncorrectQuestion 20

0 / 2 pts

Aspens is preparing a bond offering with an 8% coupon rate. The bonds will be repaid in 10 years. The company plans to issue the bonds at par value and pay interest semiannually. Given this, which of the following statements are correct?

I. The initial selling price of each bond will be $1,000.

II. After the bonds have been outstanding for 1 year, you should use 9 as the number of compounding periods when calculating the market value of the bond.

III. Each interest payment per bond will be $40.

IV. The yield to maturity when the bonds are first issued is 8%.

I and II only

II and III only

II, III, and IV only

I, III, and IV only

I, II, and III only

 

 

 

 

embery MBAA 518 3.3 – Readings and Videos Quiz 3

Question 1

2 / 2 pts

Payments made by a corporation to its shareholders, in the form of either cash, stock or payments in kind, are called:

retained earnings.

net income.

redistributions.

infused equity.

dividends.

IncorrectQuestion 2

0 / 2 pts

The constant dividend growth model is:

based on the assumption Dow 30 represents a good estimate of the market index.

generally used in practice because most stocks have a constant growth rate.

generally not used in practice because the constant growth rate is usually higher than the required rate of return.

generally not used in practice because most stocks grow at a non constant rate.

generally used in practice because the historical growth rate of most stocks is constant.

Question 3

2 / 2 pts

The rate at which a stock’s price is expected to appreciate (or depreciate) is called the _____ yield.

total

current

dividend

earnings

capital gains

Question 4

2 / 2 pts

The Scott Co. has a general dividend policy whereby it pays a constant annual dividend of $1 per share of common stock. The firm has 1,000 shares of stock outstanding. The company:

must still declare each dividend before it becomes an actual company liability.

is obligated to continue paying $1 per share per year.

must always show a current liability of $1,000 for dividends payable.

has a liability which must be paid at a later date should the company miss paying an annual dividend payment.

will be declared in default and can face bankruptcy if it does not pay $1 per year to each shareholder on a timely basis.

Question 5

2 / 2 pts

Assume that you are using the dividend growth model to value stocks. If you expect the market rate of return to increase across the board on all equity securities, then you should also expect the:

dividend growth rates to increase to offset this change.

market values of all stocks to remain constant as the dividend growth will offset the increase in the market rate.

stocks that do not pay dividends to decrease in price while the dividend-paying stocks maintain a constant price.

market values of all stocks to increase, all else constant.

market values of all stocks to decrease, all else constant.

Question 6

2 / 2 pts

The value of common stock today depends on:

the expected future dividends, capital gains and the discount rate.

the expected future holding period and capital gains.

None of these.

the expected future holding period and the discount rate.

the expected future dividends and the capital gains.

Question 7

2 / 2 pts

The net present value of a growth opportunity, NPVGO, can be defined as:

None of these.

the initial investment necessary for a new project.

the net present value per share of an investment in a new project.

a single period investment when r > g.

a continual reinvestment of earnings when r < g.

Question 8

2 / 2 pts

The total rate of return earned on a stock is comprised of which two of the following?

I. current yield

II. yield to maturity

III. dividend yield

IV. capital gains yield

III and IV only

I and II only

I and IV only

II and III only

II and IV only

Question 9

2 / 2 pts

Next year’s annual dividend divided by the current stock price is called the:

earnings yield.

capital gains yield.

yield to maturity.

total yield.

dividend yield.

Question 10

2 / 2 pts

The stock valuation model that determines the current stock price by dividing the next annual dividend amount by the excess of the discount rate less the dividend growth rate is called the _____ model.

zero growth

dividend growth

capital pricing

earnings capitalization

differential growth

Question 11

2 / 2 pts

All else constant, the net present value of a typical investment project increases when:

the discount rate increases.

each cash inflow is delayed by one year.

all cash inflows occur during the last year of a project’s life instead of periodically throughout the life of the project.

the initial cost of a project increases.

the rate of return decreases.

Question 12

2 / 2 pts

Accepting positive NPV projects benefits the stockholders because:

the present value of the expected cash flows are greater than the cost.

it is the most easily understood valuation process.

it is the most easily calculated.

None of these.

the present value of the expected cash flows are equal to the cost.

IncorrectQuestion 13

0 / 2 pts

In actual practice, managers may use the:

I. IRR because the results are easy to communicate and understand.

II. payback because of its simplicity.

III. net present value because it is considered by many to be the best method of analysis.

I and III only

None of these

I, II, and III

II and III only

I and II only

Question 14

2 / 2 pts

The discounted payback period of a project will decrease whenever the:

amount of each project cash inflow is increased.

time period of the project is increased.

costs of the fixed assets utilized in the project increase.

initial cash outlay of the project is increased.

discount rate applied to the project is increased.

IncorrectQuestion 15

0 / 2 pts

The internal rate of return tends to be:

used primarily to differentiate between mutually exclusive projects.

easier for managers to comprehend than the net present value.

ignored by most financial analysts.

utilized in project analysis only when multiple net present values apply.

extremely accurate even when cash flow estimates are faulty.

Question 16

2 / 2 pts

The payback period rule is a convenient and useful tool because:

All of these.

it provides a quick estimate of how rapidly the initial investment will be recouped.

it does not have to take into account time value of money.

results of a short payback rule decision will be quickly seen.

None of these.

Question 17

2 / 2 pts

Which one of the following statements concerning net present value (NPV) is correct?

An investment should be accepted only if the NPV is equal to the initial cash flow.

Any project that has positive cash flows for every time period after the initial investment should be accepted.

An investment with greater cash inflows than cash outflows, regardless of when the cash flows occur, will always have a positive NPV and therefore should always be accepted.

An investment should be accepted if the NPV is positive and rejected if it is negative.

An investment should be accepted if, and only if, the NPV is exactly equal to zero.

IncorrectQuestion 18

0 / 2 pts

The discounted payback rule may cause:

the most liquid projects to be rejected in favor of less liquid projects.

Both some positive net present value projects to be rejected; and some projects with negative net present values to be accepted.

projects to be incorrectly accepted due to ignoring the time value of money.

some projects with negative net present values to be accepted.

some positive net present value projects to be rejected.

Question 19

2 / 2 pts

Using internal rate of return, a conventional project should be accepted if the internal rate of return is:

negative.

positive.

less than the discount rate.

equal to the discount rate.

greater than the discount rate.

Question 20

2 / 2 pts

The discounted payback rule states that you should accept projects:

only if the discounted payback period is equal to zero.

which have a discounted payback period that is greater than some pre-specified period of time.

if the discounted payback is positive and rejected if it is negative.

only if the discounted payback period equals some pre-specified period of time.

if the discounted payback period is less than some pre-specified period of time.

Question 21

2 / 2 pts

The discount rate that makes the net present value of an investment exactly equal to zero is called the:

internal rate of return.

equalizer.

external rate of return.

profitability index.

average accounting return.

Question 22

2 / 2 pts

Which of the following methods of project analysis are biased towards short-term projects?

I. Internal rate of return

II. Net present value

III. Payback

IV. Discounted payback

I and II only

II and III only

I and IV only

II and IV only

III and IV only

Question 23

2 / 2 pts

The length of time required for an investment to generate cash flows sufficient to recover the initial cost of the investment is called the:

discounted cash period.

profitability index.

net present value.

internal rate of return.

payback period.

Question 24

2 / 2 pts

Net present value:

is not an as widely used tool as payback and discounted payback.

cannot be used when deciding between two mutually exclusive projects.

is more useful to decision makers than the internal rate of return when comparing different sized projects.

is easy to explain to non-financial managers and thus is the primary method of analysis used by the lowest levels of management.

is very similar in its methodology to the average accounting return.

IncorrectQuestion 25

0 / 2 pts

The payback period rule:

determines a cutoff point so that all projects accepted by the NPV rule will be accepted by the payback period rule.

determines a cutoff point so that depreciation is just equal to positive cash flows in the payback year.

requires an arbitrary choice of a cutoff point.

Both determines a cutoff point so that all projects accepted by the NPV rule will be accepted by the payback period rule; and varies the cutoff point with the interest rate.

varies the cutoff point with the interest rate.

IncorrectQuestion 26

0 / 2 pts

Analysis using the profitability index:

is useful as a decision tool when investment funds are limited.

utilizes the same basic variables as those used in the average accounting return.

frequently conflicts with the accept and reject decisions generated by the application of the net present value rule.

produces results which typically are difficult to comprehend or apply.

cannot be used to aid capital rationing.

IncorrectQuestion 27

0 / 2 pts

Graham and Harvey (2001) found that _____ and _____ were the two most popular capital budgeting methods.

Internal Rate of Return; Net Present Value

Modified Internal Rate of Return; Internal Rate of Return

Net Present Value; Payback Period

Modified Internal Rate of Return; Net Present Value

Internal Rate of Return; Payback Period

IncorrectQuestion 28

0 / 2 pts

A situation in which accepting one investment prevents the acceptance of another investment is called the:

issues of scale problem.

operational ambiguity decision.

multiple choices of operations decision.

net present value profile.

mutually exclusive investment decision.

UnansweredQuestion 29

0 / 2 pts

You are trying to determine whether to accept project A or project B. These projects are mutually exclusive. As part of your analysis, you should compute the incremental IRR by determining:

the internal rate of return for the differences in the cash flows of the two projects.

the internal rate of return for the cash flows of each project.

the discount rate that makes the net present value of each project equal to 1.

the net present value of each project using the internal rate of return as the discount rate.

the discount rate that equates the discounted payback periods for each project.

UnansweredQuestion 30

0 / 2 pts

All else equal, the payback period for a project will decrease whenever the:

cash inflows are moved earlier in time.

assigned discount rate decreases.

required return for a project increases.

duration of a project is lengthened.

initial cost increases.

 

 

 

 

 

embery MBAA 518 4.3 – Readings and Videos Quiz 4

Question 1

2 / 2 pts

The changes in a firm’s future cash flows that are a direct consequence of accepting a project are called _____ cash flows.

net present value

incremental

after-tax

erosion

stand-alone

Question 2

2 / 2 pts

The cash flow tax savings generated as a result of a firm’s tax-deductible depreciation expense is called the:

depreciable basis.

after-tax salvage value.

after-tax depreciation savings.

depreciation tax shield.

operating cash flow.

Question 3

2 / 2 pts

The pro forma income statement for a cost reduction project:

will generally reflect no incremental sales.

will always reflect a negative project operating cash flow.

has to be prepared reflecting the total sales and expenses of a firm.

will reflect a reduction in the sales of the firm.

cannot be prepared due to the lack of any project related sales.

Question 4

2 / 2 pts

One purpose of identifying all of the incremental cash flows related to a proposed project is to:

isolate the total sunk costs so they can be evaluated to determine if the project will add value to the firm.

make each project appear as profitable as possible for the firm.

identify any and all changes in the cash flows of the firm for the past year so they can be included in the analysis.

eliminate any cost which has previously been incurred so that it can be omitted from the analysis of the project.

include both the proposed and the current operations of a firm in the analysis of the project.

IncorrectQuestion 5

0 / 2 pts

The cash flow from projects for a company is computed as the:

sum of the incremental operating cash flow and after-tax salvage value of the project.

net income generated by the project, plus the annual depreciation expense.

sum of the incremental operating cash flow, capital spending, and net working capital expenses incurred by the project.

sum of the sunk costs, opportunity costs, and erosion costs of the project.

net operating cash flow generated by the project, less any sunk costs and erosion costs.

Question 6

2 / 2 pts

The annual annuity stream of payments with the same present value as a project’s costs is called the project’s _____ cost.

sunk

erosion

incremental

equivalent annual

opportunity

Question 7

2 / 2 pts

A pro forma financial statement is one that:

is expressed relative to a chosen base year’s financial statement.

projects future years’ operations.

reflects the past and current operations of the firm.

is expressed as a percentage of the total assets of the firm.

is expressed as a percentage of the total sales of the firm.

IncorrectQuestion 8

0 / 2 pts

All of the following are anticipated effects of a proposed project. Which of these should be included in the initial project cash flow related to net working capital?

I. An inventory decrease of $5,000

II. An increase in accounts receivable of $1,500

III. An increase in fixed assets of $7,600

IV. A decrease in accounts payable of $2,100

I, II, III, and IV

II and IV only

I and II only

I, II, and IV only

I and III only

Question 9

2 / 2 pts

The depreciation method currently allowed under U.S. tax law governing the accelerated write-off of property under various lifetime classifications is called _____ depreciation.

curvilinear

straight-line

FIFO

MACRS

sum-of-years digits

Question 10

2 / 2 pts

Which one of the following will decrease net working capital of a firm?

A decrease in accounts payable

A decrease in accounts receivable

A decrease in fixed assets

An increase in the firm’s checking account balance

An increase in inventory

Question 11

2 / 2 pts

You spent $500 last week fixing the transmission in your car. Now, the brakes are acting up and you are trying to decide whether to fix them or trade the car in for a newer model. In analyzing the brake situation, the $500 you spent fixing the transmission is a(n) _____ cost.

incremental

opportunity

fixed

sunk

relevant

Question 12

2 / 2 pts

Net working capital:

is the only expenditure where at least a partial recovery can be made at the end of a project.

expenditures commonly occur at the end of a project.

requirements generally, but not always, create a cash inflow at the beginning of a project.

can be ignored in project analysis because any expenditure is normally recouped by the end of the project.

is frequently affected by the additional sales generated by a new project.

Question 13

2 / 2 pts

Erosion can be explained as the:

loss of current sales due to a new project being implemented.

additional income generated from the sales of a newly added product.

loss of cash due to the expenses required to fix a parking lot after a heavy rain storm.

loss of revenue due to customer theft.

loss of revenue due to employee theft.

Question 14

2 / 2 pts

Which of the following are examples of an incremental cash flow?

I. An increase in accounts receivable

II. A decrease in net working capital

III. An increase in taxes

IV. A decrease in the cost of goods sold

I, III, and IV only

I, II, III, and IV

I and IV only

I and III only

III and IV only

Question 15

2 / 2 pts

The increase you realize in buying power as a result of owning a bond is referred to as the _____ rate of return.

realized

risk-free

inflated

nominal

real

 

 

 

 

MBAA 518 5.3 – Readings and Videos Quiz 5

Question 1

2 / 2 pts

Based on the period of 1926 through 2011, _____ have tended to outperform other securities over the long-term.

small company stocks

long-term corporate bonds

U.S. Treasury bills

large company stocks

long-term government bonds

Question 2

2 / 2 pts

The average squared difference between the actual return and the average return is called the:

standard deviation.

risk premium.

excess return.

variance.

volatility return.

Question 3

2 / 2 pts

Which one of the following types of securities has tended to produce the lowest real rate of return for the period 1926 through 2011?

small company stocks

long-term government bonds

large company stocks

U.S. Treasury bills

long-term corporate bonds

Question 4

2 / 2 pts

The excess return you earn by moving from a relatively risk-free investment to a risky investment is called the:

arithmetic average return.

risk premium.

time premium.

inflation premium.

geometric average return.

Question 5

2 / 2 pts

The Zolo Co. just declared that it is increasing its annual dividend from $1.00 per share to $1.25 per share. If the stock price remains constant, then:

the capital gains yield will increase.

the dividend yield will increase.

neither the capital gains yield nor the dividend yield will change.

the dividend yield will also remain constant.

the capital gains yield will decrease.

IncorrectQuestion 6

0 / 2 pts

The average annual return on long-term corporate bonds for the period of 1926 to 2011 was ________%.

3.8

8.4

7.9

6.4

5.8

Question 7

2 / 2 pts

Over the period of 1926 to 2011, small company stocks had an average return of ____%.

16.5

14.6

12.4

8.8

10.2

Question 8

2 / 2 pts

The excess return required from a risky asset over that required from a risk-free asset is called the:

risk premium.

excess return.

geometric premium.

average return.

variance.

Question 9

2 / 2 pts

On average, for the period 1926 through 2011:

the real rate of return on U.S. Treasury bills has been negative.

the risk premium on long-term corporate bonds has exceeded the risk premium on long-term government bonds.

small company stocks have underperformed large company stocks.

long-term government bonds have produced higher returns than long-term corporate bonds.

the risk premium on large company stocks has exceeded the risk premium on small company stocks.

Question 10

2 / 2 pts

In estimating the future equity risk premium, it is important to include assumptions about:

the future risk environment.

the amount of risk aversion of future investors.

the historical distribution of returns on derivative securities and the future risk environment.

the future risk environment and the amount of risk aversion of future investors.

the historical distribution of returns on derivative securities.

IncorrectQuestion 11

0 / 2 pts

Which one of the following is an example of systematic risk?

airline pilots go on strike

a hurricane hits a tourist destination

people become diet conscious and avoid fast food restaurants

the Federal Reserve increases interest rates

the price of lumber declines sharply

Question 12

2 / 2 pts

A portfolio is:

a group of assets, such as stocks and bonds, held as a collective unit by an investor.

the variance of returns for a risky asset.

the expected return on a collection of risky assets.

the expected return on a risky asset.

the standard deviation of returns for a collection of risky assets.

Question 13

2 / 2 pts

The principle of diversification tells us that:

concentrating an investment in three companies all within the same industry will greatly reduce your overall risk.

spreading an investment across many diverse assets will eliminate some of the risk.

concentrating an investment in two or three large stocks will eliminate all of your risk.

spreading an investment across many diverse assets will eliminate all of the risk.

spreading an investment across five diverse companies will not lower your overall risk at all.

IncorrectQuestion 14

0 / 2 pts

The elements along the diagonal of the variance/covariance matrix are:

security weights.

variances.

security selections.

covariances.

None of these.

Question 15

2 / 2 pts

The separation principle states that an investor will:

choose any efficient portfolio and invest some amount in the riskless asset to generate the expected return.

choose an efficient portfolio based on individual risk tolerance or utility.

invest only in the riskless asset and tangency portfolio choosing the weights based on individual risk tolerance.

All of these.

never choose to invest in the riskless asset because the expected return on the riskless asset is lower over time.

IncorrectQuestion 16

0 / 2 pts

The diversification effect of a portfolio of two stocks:

None of these.

increases as the correlation between the stocks rises.

decreases as the correlation between the stocks rises.

Both increases as the correlation between the stocks declines; and decreases as the correlation between the stocks rises.

increases as the correlation between the stocks declines.

Question 17

2 / 2 pts

A well-diversified portfolio has negligible:

unsystematic risk.

Both unsystematic risk; and variance

expected return.

variance.

systematic risk.

Question 18

2 / 2 pts

A typical investor is assumed to be:

risk averse.

a gambler.

risk neutral.

a single security holder.

a fair gambler.

Question 19

2 / 2 pts

If a stock portfolio is well diversified, then the portfolio variance:

will be a weighted average of the variances of the individual securities in the portfolio.

will be an arithmetic average of the variances of the individual securities in the portfolio.

will equal the variance of the most volatile stock in the portfolio.

must be equal to or greater than the variance of the least risky stock in the portfolio.

may be less than the variance of the least risky stock in the portfolio.

Question 20

2 / 2 pts

Standard deviation measures _____ risk.

total

unsystematic

nondiversifiable

economic

systematic

Question 21

2 / 2 pts

The combination of the efficient set of portfolios with a riskless lending and borrowing rate results in:

None of these.

the capital market line which shows that all investors will invest in a combination of the riskless asset and the tangency portfolio.

the security market line which shows that all investors will invest in a combination of the riskless asset and the tangency portfolio.

the capital market line which shows that all investors will only invest in the riskless asset.

the security market line which shows that all investors will invest in the riskless asset only.

IncorrectQuestion 22

0 / 2 pts

For a highly diversified equally weighted portfolio with a large number of securities, the portfolio variance is:

the weighted average variance.

the average covariance.

the weighted average expected value.

the average variance.

the average expected value.

IncorrectQuestion 23

0 / 2 pts

The intercept point of the security market line is the rate of return which corresponds to:

a value of 1.0.

a value of zero.

the beta of the market.

the market rate of return.

the risk-free rate of return.

Question 24

2 / 2 pts

The linear relation between an asset’s expected return and its beta coefficient is the:

market risk premium.

security market line.

reward-to-risk ratio.

portfolio risk.

portfolio weight.

Question 25

2 / 2 pts

If the correlation between two stocks is -1, the returns:

move perfectly opposite one another.

generally move in the same direction.

are unrelated to one another as it is < 0.

have standard deviations of equal size but opposite signs.

None of these.

Question 26

2 / 2 pts

Risk that affects at most a small number of assets is called _____ risk.

total

portfolio

market

nondiversifiable

unsystematic

IncorrectQuestion 27

0 / 2 pts

The standard deviation of a portfolio will tend to increase when:

one of two stocks related to the airline industry is replaced with a third stock that is unrelated to the airline industry.

short-term bonds are replaced with Treasury Bills.

the weights of the various diverse securities become more evenly distributed.

a risky asset in the portfolio is replaced with U.S. Treasury bills.

the portfolio concentration in a single cyclical industry increases.

IncorrectQuestion 28

0 / 2 pts

A risk that affects a large number of assets, each to a greater or lesser degree is called:

standard error.

total risk.

systematic risk.

unsystematic risk.

economic risk.

IncorrectQuestion 29

0 / 2 pts

As we add more securities to a portfolio, the ____ will decrease:

standard error.

systematic risk.

total risk.

unsystematic risk.

economic risk.

Question 30

2 / 2 pts

The correlation between stocks A and B is the:

None of these.

covariance between A and B divided by the standard deviation of A times the standard deviation of B.

variance of A plus the variance of B dividend by the covariance.

standard deviation A divided by the standard deviation of B.

standard deviation of B divided by the covariance between A and B.

 

 

 

 

embery MBAA 518 6.3 – Readings and Videos Quiz 6

Question 1

2 / 2 pts

The use of WACC to select investments is acceptable when the:

NPV is positive when discounted by the WACC.

correlations of all new projects are equal.

risks of the projects are equal to the risk of the firm.

firm is well diversified and the unsystematic risk is negligible.

None of these.

Question 2

2 / 2 pts

The beta of a security provides an:

estimate of the slope of the Capital Market Line.

estimate of the slope of the Security Market Line.

None of these.

estimate of the market risk premium.

estimate of the systematic risk of the security.

Question 3

2 / 2 pts

The following are methods to estimate the market risk premium:

use the bond valuation model to estimate growth in bond prices with different costs of capital.

use historical data to estimate future risk premium and use the dividend discount model to estimate risk premium.

use the dividend discount model to estimate risk premium.

use historical data to estimate future risk premium.

use historical data to estimate future risk premium and use the bond valuation model to estimate growth in bond prices with different costs of capital.

Question 4

2 / 2 pts

If a firm has low fixed costs relative to all other firms in the same industry, a large change in sales volume (either up or down) would have:

a smaller change in EBIT for the firm versus the other firms.

no effect in any way on the firms, as volume does not affect fixed costs.

None of these.

a decreasing effect on the cyclical nature of the business.

a larger change in EBIT for the firm versus the other firms.

Question 5

2 / 2 pts

For a multi-product firm, if a project’s beta is different from that of the overall firm, then the:

CAPM can no lo