<= Index =>
Chapter 1 – A Framework for Business Analysis and Valuation Using Financial Statements Chapter 1 Qui Your score is 55%. Questions answered correctly first time: 6/16 You a!e com"leted te exercise. #ow $uestions one y one
1. &emons "rolems arise in ca"ital mar'ets wen
(. ) *ana+ers are etter informed aout te !alue of teir usiness ideas tan in!estors ,. ) *ana+ers a!e an incenti!e to understate te !alue of teir usiness ideas -. ) *ana+ers and in!estors a!e conflictin+ interests . ) ( , and 0.
( and -
2. -onsider followin+ statement: 3In countries wit a model "rotectionte of in!estors4 ri+ts information intermediaries "layofastron+ i++erle+al role in "re!entin+ lemons "rolems tan in countries wit a model of wea' le+al "rotection of in!estors4 ri+ts. is statement is:
(. :78 rue ,.
9alse
. *andatory of audited fin ancial statements is anand im"erfect solution to incenti!e"ulication and information "rolems etween mana+ers in!estors ecause:
(. ) (ccountin+ "rofits are ty"ically less informati!e aout firms4 economic "erformance tan cas flows ,.
e accountin+ standards +o!ernin+ te "re"aration of suc financial statements are ty"ically too loosely defined
-. :78 *ana+ers unintentionally as well as strate+ically introduce noise into re"orted accountin+ "erformance trou+ teir accountin+ decisions .
;one of te ao!e
. ic of te followin+ items is not a re$uired com"onent of 0uro"ean "ulic firms4 financial statements
(. ) ( com"reensi!e income statement or statement of total reco+ni?ed income and ex"ense8 ,. ) (n income statement -. ) ( cas flow statement or statement of cas flows8 . ) ( alance seet or statement of financial "osition8 0.
(ll of te ao!e items are re$uired com"onents
5. -onsider te followin+ statement: 3(n economic resource wose future enefits cannot e measured wit a reasonale de+ree of certainty is not considered to e an asset for accountin+ "ur"oses. is statement is:
(. :78 rue ,.
9alse
6. ic of te followin+ statements is correct
(. ) @e!enues cannot e reco+ni?ed efore cas is collected.
,. ) 0x"enses cannot e reco+ni?ed efore te cas outflow as occurred. -. :78 @e!enues cannot e reco+ni?ed if cas collection is uncertain. .
0x"enses will always e reco+ni?ed efore or wen te cas
outflow occurs. 0.
;one of te ao!e.
A. -onsider te followin+ statement: 3e extent to wic financial statements accurately reflect te conse$uences of mana+ers4 o"eratin+ in!estment and financin+ decisions is a function of caracteristics of te accountin+ en!ironment and mana+ers4 accountin+ strate+y. is statement is:
(. :78 rue ,.
9alse
B. -onsider te followin+ statement: 3(ccountin+ con!entions and re+ulations tat lea!e mana+ement no accountin+ discretion lead to more useful financial statements tan accountin+ con!entions and re+ulations tat do +rant accountin+ discretion. is statement is:
(. ) rue ,.
9alse
C. -onsider te followin+ statement: 39inancial re"orts of "ulicly listed firms are "re"ared usin+ accrual accountin+ rater tan cas accountin+. is statement is:
(. :78 rue ,.
9alse
1D.ic of te followin+ statements is true
(. ) e im"lementation of te 0i+t -om"any &aw irecti!e in te 0uro"ean Enion as remo!ed all systematic differences in te effecti!eness of external auditin+ across countries. ,. :78 Fne of te oGecti!es of te 0i+t -om"any &aw irecti!e in te 0uro"ean Enion is to set minimum standards for "ulic audits tat im"ro!e auditor inde"endence. -.
.
(ll audits of "ulic firms witin te 0uro"ean Enion must e carried out in accordance wit te set of Henerally (cce"ted (uditin+ #tandards as "romul+ated y te ulic -om"any (ccountin+ F!ersi+t ,oard.
;one of te ao!e
11. ic of te followin+ statements is true
(. ) *ana+erial le+al liaility re+imes are e$ually strict across te memer states of te 0uro"ean Enion. ,. ) Ender a strict le+al liaility re+ime mana+ers tend to "ro!ide more forward7loo'in+ disclosures tan under a loose re+ime. -. :78 *ana+erial le+al liaility re+imes are less strict in Hermany and te EJ tan in te E#. .
;one of te ao!e
12.Fne of te "rimary tas's of te -ommittee of 0uro"ean #ecurities @e+ulators is to:
(. :78 Im"ro!e te consistency of "ulic enforcement acti!ities across 0uro"ean countries. ,.
ulicly disclose all 0uro"ean "ulic enforcement decisions.
-.
e!elo" a set of International ulic 0nforcement #tandards.
.
isci"line 0uro"ean "ulic com"anies for !iolations of International 9inancial @e"ortin+ #tandards.
1.-onsider te followin+ statement: 3e outcomes of usiness strate+y analysis affect te financial andis "ros"ecti!e analyses ut a!e no rele!ance for te accountin+ analysis. statement is:
(. ) rue ,.
9alse
1.ic of te followin+ statements is correct
(. ) e accountin+ analysis follows te financial analysis ,. ) e "ros"ecti!e analysis "recedes te strate+y analysis -. :78 e "ros"ecti!e analysis follows te financial analysis .
e financial analysis "recedes te strate+y analysis
15.e outcomes of te strate+y analysis affect te accountin+ analysis ecause
(. ) e strate+y analysis also includes an analysis of te firm4s accountin+ strate+y ,. ) 9irms wit "oor strate+ies are more li'ely to a!e low7$uality financial statements tan firms wit successful strate+ies -. :78 ( firm4s industry and com"etiti!e strate+y affect wic accountin+ coices are a""ro"riate. .
;one of te ao!e.
16.wo reasons for wy financial statements tend to e less useful in te analysis of "ri!ately eld usinesses tan in te analysis of "ulicly eld usinesses witin te 0E8 is tat:
(. :78 i8 and ri!ate firm4s financial statements are stron+ly influenced y tax rules ii8 mana+ers of "ri!ate firms a!e less incenti!e to "re"are informati!e financial statements tan mana+ers of "ulic firms. ,.
ri!ate firm4s financial statements i8 do not com"ly wit tax rules and ii8 are not "ulicly a!ailale.
-.
ri!ate firm4s i8 financial re"ortin+ is unre+ulated and ii8 financial statements are not "ulicly a!ailale.
.
;one of te ao!e.
<= Index => <= Index =>
Chapter ! – Strategy Analysis Qui Your score is 51%. Questions answered correctly first time: 5/15 You a!e com"leted te exercise. #ow $uestions one y one
1. Industry "rofitaility is a fun ction of
(. ) @i!alry amon+ existin+ firms ,. ) -om"etiti!e ad!anta+e of industry memers -. ) ,ar+ainin+ "ower of customers . ) ( , and oter factors 0.
( - and oter factors
2. ic of te followin+ industry factors does not affect te nature of ri!alry amon+ existin+ firms in te industry
(. ) @atio of fixed to !ariale costs ,. ) -oncentration of com"etitors -. ) Industry +rowt .
9irst mo!er ad!anta+e
. ic of te followin+ industry factors does not affect te treat of new firms enterin+ te industry
(. ) &e+al arriers ,. ) @atio of fixed to !ariale costs -. :78 rice sensiti!ity of uyers .
9irst mo!er ad!anta+e
. ic of te followin+ industry factors does not affect te ar+ainin+ "ower of uyers in te industry
(. ) -oncentration of uyers relati!e to te concentration of sellers ,. :78 @atio of fixed to !ariale costs -.
rice sensiti!ity of customers
.
;one of te ao!e
5. 0uro"ean airlines4 structural excess ca"acity i.e. low load facto rs8 ne+ati!ely affected te a!era+e "rofitaility in te 0uro"ean airline industry etween 1CC5 and 2DD. is is an exam"le of ow
(. :78 e ri!alry amon+ existin+ firms affects industry "rofitaility. ,.
e treat of new entrants affects industry "rofitaility.
-.
e treat of sustitute "roducts affects industry "rofitaility.
.
e ar+ainin+ "ower of uyers affects industry "rofitaility.
0.
e ar+ainin+ "ower of su""liers affects industry "rofitaility.
6. e "rice sensiti!ity of customers in te otel industry
(. ) Karies de"endin+ on wat day of te wee' it is. ,. :78 Is "ositi!ely affected y te a!ailaility of we oo'in+ systems and te resultin+ "rice trans"arency in te industry. -.
.
Is ne+ati!ely affected y te lac' of otels in a "articular +eo+ra"ical area.
;one of te ao!e
A. -onsider te followin+ statement: 3iscount retailers follow a cost leadersi" strate+y. is statement is
(. :78 rue ,.
9alse
B. -onsider te followin+ statement: 3In industries wit i+ ri!alry amon+ existin+ firms te o"timal com"etiti!e strate+y is to e a cost leader. is statement is
(. ) rue ,.
9alse
C. -onsider te followin+ statement: 3Kery few firms are suc cessful in cominin+ a cost leadersi" strate+y wit a differentiation strate+y ecause ot strate+ies re$uire different and ty"ically irreconcilale core com"etences. is statement is
(. :78 rue ,.
9alse
1D.-onsider te followin+ statement: 39irms followin+ a cost leadersi" strate+y tend to earn i+er mar+ins on teir "roducts or ser!ices tan firms followin+ a differentiation strate+y. is statement is
(. ) rue ,.
9alse
11. *ana+ers4 coice weter or not to di!ersify acti!ities across +eo+ra"ical areas or "roduct se+ments is "art of te
(. :78 -or"orate strate+y decision ,.
-om"etiti!e strate+y decision
-.
;one of te ao!e
12.0conomic teory indicates tat te o"timal cor"orate strate+y and structure minimi?es te firm4s
(. ) roduction costs ,. ) #er!ice costs -. ) ,oo' !alue of assets . :78 ransaction costs
0.
;one of te ao!e
1.e existence of con+lomerates in emer+in+ mar'ets is "artly te result of
(. ) &ow transaction costs in emer+in+ laor mar'ets ,. :78 Li+ transaction costs in emer+in+ ca"ital mar'ets -.
Li+ transaction costs in emer+in+ "roduction mar'ets
.
&ow transaction costs in emer+in+ "roduction mar'ets
0.
;one of te ao!e
1.-onsider te followin+ statement: 3#in+le7se+ment usinesses a!e lower transaction costs tan multi7se+ment usinesses. is statement is
(. ) rue ,.
9alse
15.-onsider te followin+ statement: 3( firm4s industry coice com"etiti!e "ositionin+ and cor"orate strate+y all influence te difference etween te firm4s actual and re$uired return on ca"ital. is statement is
(. :78 rue ,.
9alse <= Index => <= Index =>
Chapter " – #$er$iew of Accounting Analysis Qui
Your score is 5D%. Questions answered correctly first time: /16 You a!e com"leted te exercise. #ow $uestions one y one
1. e oGecti!e of accountin+ analysis is ty"ically not to
(. ) Identify areas in te financial statements tat are most stron+ly affected y mana+ement4s discretionary accountin+ coices. ,. ) Identify accountin+ coices tat are most critical to a firm4s accountin+ "erformance. -. :78 (sses weter te financial statements fully com"ly wit accountin+ con!entions and re+ulations. .
Enderstand mana+ement4s re"ortin+ incenti!es and strate+y.
0.
Endo te financial statements from distortions.
2. -onsider te followin+ statement: 3International 9inancial @e"ortin+ #tandards I9@#8 are ty"ically considered to e more "rinci"les7ased tan E# Henerally (cce"ted (ccountin+ rinci"les E# H((8. is statement is
(. :78 rue ,.
9alse
. -onsider te followin+ statement: 3e use of rules7ased standards rater tan "rinci"les7ased standards decreases te !erifiaility of financial statements ut increases te extent to wic financial statements reflect te economic sustance of a firm4s transaction. is statement is
(. ) rue ,.
9alse
. ic of te followin+ statements is true
(. ) *ana+ers of firms tat are close to !iolatin+ accountin+7ased det co!enants a!e an incenti!e to mana+e earnin+s and wor'in+ ca"ital ratios downwards. ,. ) In sare7for7sare mer+ers mana+ers of te ac$uirin+ firm a!e an incenti!e to understate teir firm4s accountin+ "erformance. -. ) ,ot statements are true. .
;one of te ao!e statements is true.
5. ic of te followin+ statements is true
(. :78 *ana+ers a!e an incenti!e to understate accountin+ "erformance sortly efore a lar+e o"tion award is +ranted to tem. ,.
*ana+ers wo a++ressi!ely mana+e teir firm4s taxes a!e an incenti!e to consistently o!erstate teir firm4s accountin+ "erformance.
-.
,ot statements are true.
.
;one of te ao!e statements is true.
6. ic of te followin+ is not a "otential 3red fla+ "ointin+ to $uestionale accountin+ $uality
(. ) Enex"lained transactions tat oost "rofit ,. ) Enex"ected lar+e asset write7offs -. :78 Kolatility in te difference etween re"orted "rofits and cas flows .
oor internal +o!ernance mecanisms
0.
(ll of te ao!e are "otential red fla+s
A. ic of te followin+ is not a "otential 3red fla+ "ointin+ to $uestionale accountin+ $uality
(. ) (n increasin+ +a" etween a firm4s re"orted "rofit and its tax "rofit ,. ) (n increasin+ +a" etween a firm4s re"orted "rofit and its cas flow from o"eratin+ acti!ities -. ) Enusual increases in in!entories in relation to sales increases . :78 e use of accelerated de"reciation metods 0.
(ll of te ao!e are "otential red fla+s
B. Ender I9@# firms can classify teir o"eratin+ ex"enses in te income statement eiter y function or y nature. ic of te followin+ two statements aout o"eratin+ ex"ense classification is true #tatement I: Ender te classification y nature firms distin+uis 3cost of sales from 3sellin+ +eneral and administrati!e #HM(8 ex"enses. #tatement II: e International 9inancial @e"ortin+ #tandards re$uire tat firms classifyin+ teir o"eratin+ ex"enses y nature in te income statement disclose teir o"eratin+ ex"enses y function in te notes to te financial statements.
(. ) #tatement I is trueN statement II is not true. ,. ) #tatement I is not trueN statement II is true. -. ) ,ot statements are true. .
,ot statements are not true.
C. ic of te followin+ accountin+ "olicies is most li'ely to e a 'ey accountin+ "olicy of -arrefour one of te world4s lar+est retailers
(. ) (ccountin+ for "ayales
,. ) (ccountin+ for le+al claims -. ) (ccountin+ for re!enues .
(ccountin+ for "ro"erty
1D.ic of te followin+ factors is not rele!ant in e!aluatin+ a firm4s accountin+ strate+y
(. ) *ana+ement4s incenti!es to mana+e earnin+s ,. :78 e "resence of mandatory can+es in accountin+ "olicies -.
(!era+e accountin+ coices in te industry
.
(ccuracy of "ast accountin+ estimates
0.
e "resence of !oluntary can+es in accountin+ "olicies
11. -onsider te followin+ statements aout standardi?ation of financial statements. #tatement I: e income statement items 3@esult from associate com"anies or 30$uity income from associates must e classified as 3*inority Interest. #tatement II: e alance seet item 3ro!ision for "ost7em"loyment enefits must e classified as 3;on7current det.
(. ) #tatement I is trueN statement II is not true. ,. :78 #tatement I is not trueN statement II is true. -.
,ot statements are true.
.
,ot statements are not true.
12.ic of te followin+ statements is correct
(. :78 3Heneral and (dministrati!e 0x"ense is an income statement line item tat firms use under a classification of o"eratin+ ex"enses y function. ,.
3@aw *aterials is an income statement line item tat firms use under a classification of o"eratin+ ex"enses y function.
-.
3*ar'etin+ and #ellin+ 0x"ense is an income statement line item tat firms use under a classification of o"eratin+ ex"enses y nature.
.
3-ost of #er!ices is an income statement line item tat firms use under a classification of o"eratin+ ex"enses y nature.
1.ic of te followin+ relationsi"s etween income statement line item and standard income statement account is correct
(. :78 #er!icin+ and maintenance > #HM( y function8 ,.
i!idend income > Interest income
-.
(sset im"airments > -ost of sales y function8
.
#are7ased "ayments > In!estment income
1.ic of te followin+ relationsi"s etween alance seet line item and standard alance seet account is correct
(. ) (mounts due from affiliates > rade recei!ales ,. ) Hoodwill > ;on7current tan+ile assets -. :78 or'7in7"ro+ress > In!entories .
ro!ision for "ost7em"loyment enefits > Fter current liailities
15.ic of te followin+ relationsi"s etween cas flow statement line item and standard cas flow statement account is correct
(. ) e"reciation and amorti?ation > ;on7o"eratin+ losses +ains8 ,. :78 eferred tax ex"ense > ;on7current o"eratin+ accruals -.
#toc' onus awards > ;et in!estments in o"eratin+ wor'in+ ca"ital
.
-a"ital ex"enditures > ;et in!estments in o"eratin+ wor'in+ ca"ital
16.O(out (""endix (P en firms ado"t I9@# International 9inancial @e"ortin+ #tandards8 for te first time tey a""ly te new standards retros"ecti!ely. is im"lies tat tey
(. ) Ese I9@# only for transactions tat occurred durin+ te "rior and current year ,. ) Ese I9@# only for transactions tat occurred durin+ te current year -. :78 Ese I9@# for all "ast transactions i.e. a""ly I9@# as if tey ad a""lied I9@# all alon+ wit some exce"tions8 .
;one of te ao!e <= Index => <= Index =>
Chapter % – &mplementing Accounting Analysis Qui Your score is 5D%. Questions answered correctly first time: /1 You a!e com"leted te exercise. #ow $uestions one y one
1. -om"any (4s non7current assets a!e a residual !alue of ?ero a e+innin+ oo' !alue of 5DDD and an initial cost of 1DDDD. -om"any ( uses an annual de"reciation "ercenta+e of 1D%. Its statutory and effecti!e8 tax rate is D "ercent. at adGustments would an analyst ma'e to com"any (4s e+innin+ e$uity and non7current assets if se assumes tat com"any (4s de"reciation "ercenta+e sould e 12%
(. ) ecrease non7current assets y 1DDDN decrease e$uity y 1DDD ,. ) ecrease non7current assets y 2DDDN decrease e$uity y 2DDD -. :78 ecrease non7current assets y 1DDDN decrease e$uity y ADD .
ecrease non7current assets y 2DDDN decrease e$uity y 1DD
2. -om"any (4s non7current assets a!e a residual !alue of ?ero a e+innin+ oo' !alue of 5DDD and an initial cost of 1DDDD. -om"any ( uses an annual de"reciation "ercenta+e of 1D%. Its statutory and effecti!e8 tax rate is D "ercent. at adGustments would an analyst ma'e to com"any (4s current year4s tax ex"ense if se assumes tat com"any (4s de"reciation "ercenta+e sould e 12%
(. :78 ecrease tax ex"ense y 6D ,.
Increase tax ex"ense y 6D
-.
ecrease tax ex"ense y D
.
Increase tax ex"ense y D
0.
;o adGustment
. (n analyst ma'es an adGustment for understated de"reciation increasin+ -om"any (,-4s (ccumulated e"reciation on M08 y an amount of 1D million. e -om"any4s tax rate is D "ercent. In te financial statements tis adGustment
(. ) ecreases net non7current assets y 1D million and decreases e$uity y 1D million. ,. ) Increases net non7current assets y 1D million and increases e$uity y 1D million. -. :78 ecreases net non7current assets y 1D million decreases e$uity y 6 million and decreases oter non7current liailities y million.
.
ecreases net non7current assets y 1D million decreases e$uity y 6 million and decreases net det y million.
. Incorrectly treatin+ finance leases as o"eratin+ leases in te fin ancial statements el"s firms to
(. ) F!erstate asset turno!er and o!erstate le!era+e ,. ) F!erstate "rofit mar+ins and understate asset turno!er -. ) Enderstate asset turno!er and o!erstate le!era+e .
F!erstate asset turno!er and understate le!era+e
5. ( "armaceutical com"any s"ends 5DDD 6DDD and DDD on researc in 2DDB 2DDC and 2D1D res"ecti!ely. (ssume tat researc in!estments a!e an ex"ected life of two years and occur e!enly trou+out te year. If an analyst decides to ca"itali?e all researc ex"enditures and uses te strai+t7 line metod to amorti?e researc assets er estimate of te oo' !alue of te "armaceutical4s researc asset at te end of 2D1D e$uals
(. ) 15DDD ,. ) 1DDDD -. :78 5DD .
D
6. ( "armaceutical com"any s"ends 5DDD 6DDD and DDD on researc in 2DDB 2DDC and 2D1D res"ecti!ely. (ssume tat researc in!estments a!e an ex"ected life of two years and occur e!enly trou+out te year. If an analyst decides to ca"itali?e all researc ex"enditures and uses te strai+t7 line metod to amorti?e researc assets er estimate of te "armaceutical4s researc amorti?ation ex"ense in 2D1D e$uals
(. ) DDD
,. ) 5DDD -. ) 52DD .
525D
A. ( car manufacturer reco+ni?es te sale of DDDD cars in its income sta tement. e cars a!e a total sellin+ "rice of 5DDDD and a total cost of 5DDDD. (ll cars a!e een "re"aid ut not yet si""ed to te customer. e car manufacturer4s statutory and effecti!e tax rate is D "ercent. e reco+nition of tis sale leads to te followin+ distortions:
(. ) ;o o!erstatement/understatement of net "rofit and e$uityN o!erstatement of total assets and total liailities y 5DDDD. ,. ) F!erstatement of net "rofit and e$uity y 1DDDDDN o!erstatement of total assets y 5DDDDN o!erstatement of total liailities y 25DDDD. -. ) F!erstatement of net "rofit and e$uity y 1DDDDDN o!erstatement of total assets y 1DDDDD. .
F!erstatement of net "rofit and e$uity y 1DDDDDN understatement of total assets y 5DDDDN understatement of total liailities y 5DDDD
B. Fn ecemer 1 2D1D a com"any re"orted te followin+ !alues for its allowances for doutful accounts: (llowance for doutful accounts 1/12/2D1D ,alance at te e+innin+ of te year DDDD ro!ision for ad dets =ad det ex"ense8 2DDD rite7offs 5DDD ,alance at te end of te year 2ADDD Hross trade recei!ales on ecemer 1 2D1D and Ranuary 1 2D1D were BDDDD and 1DDDDD res"ecti!ely. e com"any4s tax rate e$uals D "ercent. If an analyst decides tat te com"any4s allowance for doutful accounts sould a!e een 25 "ercent of +ross trade recei!ales on 1 ecemer 2D1D and statement would e to1 Ranuary 2D1D te adGustments to te income
(. ) Sero ,. :78 ecrease te ad det ex"ense y 2DDD increase te tax ex"ense y 6DD and increase net "rofit y 1DD. -.
Increase te ad det ex"ense y 5DDD decrease te tax
ex"ense y 15DD and decrease net "rofit y 5DD. .
Increase te ad det ex"ense y DDD decrease te tax ex"ense y CDD and decrease net "rofit y 21DD.
C. (n analyst as decided to ca"itali?e te o"eratin+ leases of -om"any (. Esin+ information in te notes to te com"any4s 2D11 financial statements se as determined tat te "resent !alue of future minimum lease "ayments at a discount rate of 1D "ercent on ecemer 1 2D11 e$uals 5DD million. (ll lease contracts last anoter 5 years on ecemer 1 2D11. (s ex"ected at te e+innin+ of te year te com"any re"orts an o"eratin+ lease ex"ense in its income statement for 2D12 of BD million. e com"any4s tax rate e$uals D "ercent. e com"any does not en+a+e in any new o"eratin+ leases in 2D12. e followin+ information is also a!ailale from -om"any (4s financial statements all ratios use e+innin+7of7te7year alance seet !alues8 ;et det to net ca"ital at e+innin+ of 2D128 D.55 @eturn on e+innin+ e$uity in 2D12 D.1D ;et assets at e+innin+ of 2D128 DD million e effect of ca"itali?in+ -om"any (4s o"eratin+ leases on its le!era+e ratio net det to net ca"ital8 e$uals
(. :78 (n increase from D.55 to D.61 rounded8. ,.
(n increase from D.55 to D.A rounded8.
-.
(n increase from D.55 to D.B2 rounded8.
.
( decrease from D.55 to D.51 rounded8.
1D.(n analyst as decided to ca"itali?e te o"eratin+ leases of -om"any (. Esin+ information in te te "resent notes to !alue te com"any4s 2D11 financial se as determined tat of future minimum leasestatements "ayments at a discount rate of 1D "ercent on ecemer 1 2D11 e$uals 5DD million. (ll lease contracts last anoter 5 years on ecemer 1 2D11. (s ex"ected at te e+innin+ of te year te com"any re"orts an o"eratin+ lease ex"ense in
its income statement for 2D12 of BD million. e com"any4s tax rate e$uals D "ercent. e com"any does not en+a+e in any new o"eratin+ leases in 2D12. e followin+ information is also a!ailale from -om"any (4s financial statements all ratios use e+innin+7of7te7year alance seet !alues8 ;et det to net ca"ital at e+innin+ of 2D128 D.55 @eturn on e+innin+ e$uity in 2D12 D.1D ;et assets at e+innin+ of 2D128 DD million e effect of ca"itali?in+ -om"any (4s o"eratin+ leases on its return on e+innin+ e$uity e$uals
(. ) (n increase from D.1D to D.15 rounded8. ,. ) (n increase from D.1D to D.1 rounded8. -. :78 ( decrease from D.1D to D.DA rounded8. .
( decrease from D.1D to D.D5 rounded8.
11. -om"any , reduces te discount rate it uses to estimate its "ost7em"loyment enefit oli+ation from B "ercent at te e+innin+ of fiscal year 2DDC8 to A "ercent at te e+innin+ of fiscal year 2D1D8. (nalysts followin+ com"any , elie!e tat tis reduction is unGustified. (ccordin+ to tese analysts com"any ,
(. :78 Enderstates its 2D1D interest cost o!erstates its 2D1D ser!ice costN o!erstates te cumulati!e actuarial +ains at te e+innin+ of 2D1D. ,.
Enderstates its 2D1D interest cost o!erstates its 2D1D ser!ice costN o!erstates te fair !alue of "lan assets at te e+innin+ of 2D1D.
-.
F!erstates its 2D1D interest cost understates its 2D1D ser!ice costN understates te cumulati!e actuarial +ains at te e+innin+ of 2D1D.
.
Enderstates its 2D1D interest cost understates its 2D1D ser!ice costN understates te fair !alue of "lan assets at te e+innin+ of 2D1D.
12.Ender I9@# te "ension ex"ense reco+ni?ed in te income statement may not e e$ual to te economic cost of te "ost7em"loyment enefit "lan ecause
(. :78 9irms can reco+ni?e of current actuarial +ains or losses in oter com"reensi!e income. ,.
9irms can reco+ni?e "ast ser!ice cost in oter com"reensi!e income.
-.
9irms can reco+ni?e unex"ected "lan contriutions in oter com"reensi!e income.
.
,ot ( and , are correct
0.
,ot ( and - are correct
1.@ecent international rules I9@# C8 for te reco+nition of fair !alue +ains or losses on e$uity securities wic re"lace I(# C im"ly tat +ains or losses are no lon+er recycled. is means tat
(. ) 9air !alue +ains or losses tat a!e een reco+ni?ed in net "rofit can no lon+er e re!ersed in later "eriods. ,. :78 9air !alue +ains or losses will no lon+er e reco+ni?ed in com"reensi!e income wile ein+ unreali?ed and reco+ni?ed in net "rofit u"on reali?ation. -.
;one of te ao!e <= Index => <= Index =>
Chapter ' – Financial Analysis Qui Your score is 66%. Questions answered correctly first time: 5/1 You a!e com"leted te exercise. #ow $uestions one y one
1. o assess te efficiency of a firm4s in!estment mana+ement an analyst would analy?e te firm4s
(. ) ;et "rofit mar+in ,. :78 F"eratin+ asset turno!er -.
9inancial s"read
.
;et financial le!era+e
2. o assess te efficiency of a firm4s o"eratin+ mana+ement an analyst would analy?e te firm4s
(. :78 ;et "rofit mar+in ,.
F"eratin+ asset turno!er
-.
9inancial s"read
.
;et financial le!era+e
. Fne difference etween te traditional and te alternati!e a""roac to decom"osin+ return on e$uity is tat
(. ) e traditional a""roac defines le!era+e as det7to7e$uity wereas te alternati!e a""roac defines le!era+e as assets7to7e$uity. ,. ) Fnly te traditional a""roac ex"licitly sows te im"act of financial s"read on return on e$uity. -. :78 e a""roaces use different definitions of "rofit mar+ins and asset turno!er. .
Fne a""roac uses e+innin+7of7year alance seet items to calculate ratios wereas te oter a""roac uses end7of7year alance seet items.
. (t te end of fiscal year 2D12 com"any S discloses te followin+ alance seet: (ssets
-as 5DDDDD ;on7cas current assets BDDDDD ;on7current assets 1DDDDD *inority 0$uity In!estments DDDDD otal 2CDDDDD 0$uity and &iailities -urrent det DDDDD Fter current liailities ADDDDD ;on7current et 1DDDDD eferred tax liaility 15DDDD 0$uity 5DDDD otal 2CDDDDD e com"any needs a cas alance of DDDDD for its o"erations. -om"any S4s net non7current o"eratin+ assets e$ual
(. ) 1DDDDD ,. ) 1DDDDD -. :78 115DDDD .
2CDDDDD
5. (t te end of fiscal year 2D12 com"any S discloses te followin+ alance seet: (ssets -as 5DDDDD ;on7cas current assets BDDDDD ;on7current assets 1DDDDD *inority 0$uity In!estments DDDDD otal 2CDDDDD 0$uity and &iailities -urrent det DDDDD Fter current liailities ADDDDD ;on7current et 1DDDDD eferred tax liaility 15DDDD 0$uity 5DDDD otal 2CDDDDD e com"any needs a cas alance of DDDDD for its o"erations. -om"any S4s o"eratin+ wor'in+ ca"ital and in!estment assets e$ual
(. :78 DDDDD and 5DDDDD res"ecti!ely ,.
1DDDDD and 5DDDDD res"ecti!ely
-.
DDDDD and DDDDD res"ecti!ely
.
1DDDDD and DDDDD res"ecti!ely
6. (t te end of fiscal year 2D1D com"any ) discloses te followin+ income statement: #ales 6.5DDDDD F"eratin+ ex"ense BDDDDD8 Interest income 6DDDDD Interest ex"ense CDDDDD8 ax ex"ense CDDDD8 ;et "rofit C1DDDD -om"any )4s interest ex"ense after tax and net o"eratin+ "rofit after taxes e$ual
(. :78 5B5DDD and 11D5DDD res"ecti!ely ,.
1C5DDD and 11D5DDD res"ecti!ely
-.
DDDDD and C1DDDD res"ecti!ely
.
DDDDD and 11D5DDD res"ecti!ely
A. -om"any ( discloses te followin+ information: 7 @eturn on e$uity = 15 "ercent 7 ;et o"eratin+ and in!estment "rofit after taxes ;F( T ;I(8 = 5DDDDD 7 ,usiness assets = DDDDDD 7 0ffecti!e interest rate after tax = B "ercent -om"any (4s financial le!era+e det7to7e$uity ratio8 is
(. ) ,etween D and C.C "ercent ,. :78 ,etween 5D and 5C.C "ercent
-.
,etween 6D and 6C.C "ercent
.
,etween AD and AC.C "ercent
B. -om"any , discloses te followin+ information: 7 @eturn on o"eratin+ assets = 1D "ercent 7 ;et o"eratin+ "rofit after taxes = 5DDDDD 7 #ales = DDDDDD 7 0$uity = 2DDDDDD -om"any ,4s o"eratin+ asset turno!er is
(. ) ,etween D and C.C "ercent ,. ) ,etween 5D and 5C.C "ercent -. :78 ,etween 6D and 6C.C "ercent .
,etween AD and AC.C "ercent
C. Industry "eers - and disclose te followin+ information: -om"any - -om"any F"eratin+ asset turno!er 5.6 2. @eturn on o"eratin+ assets 1D "ercent 1D "ercent ic of te two com"anies is more li'ely to follow a cost leadersi" strate+y
(.
-om"any -
,. ) -om"any
1D.-om"any 0 discloses te followin+ information: 7 In!entories = BDDDDD 7 -ost of sales = 5DDDDD 7 ,usiness assets = DDDDDD
-om"any 04s days4 in!entories is
(.
,etween D and C.C days
,.
,etween D and C.C days
-.
,etween 5D and 5C.C days
. :78 ,etween 6D and 6C.C days
11. If a firm4s return on e$uity is 2D "ercent its return on usiness assets is 1 "ercent its sales +rowt rate is 15 "ercent and its di!idend "ayout ratio is 5D "ercent its sustainale +rowt rate e$uals
(.
A "ercent
,.
A.5 "ercent
-. :78 1D "ercent . ) 15 "ercent
12.(t te end of fiscal year 2D1D com"any Y discloses te followin+ information: ;et o"eratin+ and in!estment "rofit after taxes ;F( T ;I(8 11DDDDD Interest ex"ense after tax = interest "aid8 5DDDDD ;et in!estment in o"eratin+ wor'in+ ca"ital increase8 ADDDDD ;et in!estment in non7current assets increase8 CDDDDD ;on7o"eratin+ losses CDDDD e"reciation and amorti?ation ex"ense C1DDDD Increase in det 55DDDD i!idends "aid DDDDD -om"any Y4s free cas flow a!ailale to det and e$uity is
(.
2DDDDD "ositi!e8
,.
1D5DDDD "ositi!e8
-.
5DDDDD "ositi!e8
. :78 5DDDDD8 ne+ati!e8
1.(t te end of fiscal year 2D1D com"any Y discloses te followin+ information: ;et o"eratin+ and in!estment "rofit after taxes ;F( T ;I(8 11DDDDD Interest ex"ense after tax = interest "aid8 5DDDDD ;et in!estment in o"eratin+ wor'in+ ca"ital increase8 ADDDDD ;et in!estment in non7current assets increase8 CDDDDD ;on7o"eratin+ losses CDDDD e"reciation and amorti?ation ex"ense C1DDDD Increase in det 55DDDD i!idends "aid DDDDD -om"any Y4s free cas flow a!ailale to e$uity is
(.
2DDDDD "ositi!e8
,. :78 5DDDD8 ne+ati!e8 -. ) 5DDDDD8 ne+ati!e8 .
5DDDDD "ositi!e8 <= Index => <= Index =>
Chapter ( – )rospecti$e Analysis* Forecasting Qui Your score is 2%. Questions answered correctly first time: 1/A You a!e com"leted te exercise. #ow $uestions one y one
1. ic of te followin+ items are re$uired to "roduce a forecasted future condensed income statement
(. ) ax rateN ;F( mar+inN sales +rowtN interest rate on endin+ det ,. ) ax rateN asset turno!erN ;F( mar+inN sales +rowt -. ) ;F( mar+inN sales +rowtN return on e+innin+ in!estment assetsN interest rate on e+innin+ detN le!era+e ratio .
ax rateN ;F( mar+inN sales +rowtN return on e+innin+ in!estment assetsN interest rate on e+innin+ det
2. -onsider te followin+ statement: 3#ales +rowt tends to re!ert faster to its economy7wide a!era+e tan o"eratin+ asset turno!er. is statement is
(.
rue
,. ) 9alse
. -onsider te followin+ statement: 3@eturn on o"eratin+ assets tends to re!ert faster to its economy7wide a!era+e tan financial le!era+e. is statement is
(.
rue
,. ) 9alse
. -onsider te followin+ statement: 39inancial le!era+e tends to re!ert faster to its economy7wide a!era+e tan financial s"read. is statement is
(.
rue
,. :78 9alse
5. In cyclical industries sales +rowt
(.
ends to mo!e in line wit economy7wide +rowt
,. ) ends to a""roac ?ero -. ) ends to e ne+ati!e durin+ economic u"turns . ) -onsistently exceeds economy7wide +rowt
6. -om"any ( re"orts te followin+ series of $uarterly earnin+s: Q1 = D.25DN Q2 = D.DDN Q = D.2BDN Q = D.2ADN Q5 = D.25DN Q6 = D.2DN QA = D.2CDN QB = D.2B5. (n analyst assumes tat com"any (4s $uarterly earnin+s "erfectly follow te time7series "rocess descried y te 9oster model. Ender tis assum"tion te analyst4s forecast of $uarter C earnin+s is
(. ) D.255D ,.
D.225
-.
D.2A5D
. :78 D.2625
A. -onsider te followin+ statement: 3e 9oster model does not ta'e into account tat $uarterly earnin+s may exiit a seasonal "attern. is statement is
(. ) rue ,.
9alse <= Index => <= Index =>
Chapter + – )rospecti$e Analysis* Valuation ,heory and Concepts Qui Your score is B%. Questions answered correctly first time: 2/1 You a!e com"leted te exercise. #ow $uestions one y one
1. (n analyst "roduces te followin+ series of annual di!idend forecasts for com"any (: 0x"ected di!idend end of8 year tT1 = 1DN 0x"ected di!idend end of8 year tT2 = 2DN 0x"ected di!idend end of8 year tT = 1D. e analyst furter ex"ects tat com"any (4s di!idends will e ?ero after year tT. -om"any (4s cost of e$uity e$uals 1D "ercent. Ender tese assum"tions te analyst4s estimate of com"any (4s e$uity !alue at te end of year t is
(. ) 1.16 ,. :78 .1 -.
6.6
.
D
2. (n analyst "redicts tat com"any ,4s di!idend at te end of year tT1 will e$ual 1D. e analyst furter ex"ects tat after year tT1 com"any ,4s di!idends will +row indefinitely at a rate of 2 "ercent. -om"any ,4s cost of e$uity e$uals A "ercent. Ender tese assum"tions te analyst4s estimate of com"any ,4s e$uity !alue at te end of year t is
(. ) 1DD.DD ,.
111.11
-.
12.B6
. :78 2DD.DD
. (n analyst "roduces te followin+ set of forecasts for com"any -: Year tT1 Year tT2 Year tT ;et "rofit 1DD 12D 6D 0ndin+ oo' !alue of usiness assets 1DD 1D6D 1DDD 0ndin+ oo' !alue of det A2D AD BDD (t te end of year t com"any -4s oo' !alues of usiness assets and det are 1DDD and ADD res"ecti!ely. e analyst ex"ects tat after year tT net "rofit will e D and te oo' !alues of usiness assets and det will remain constant i.e. at teir year tT le!els8. -om"any -4s cost of e$uity is 1D
"ercent. Ender tese assum"tions te analyst4s estimate of com"any -4s e$uity !alue at te end of year t is
(.
22B.1A
,. ) 21.C -. :78 DA.C6 . ) 5.5
. (n analyst "roduces te followin+ set of forecasts for com"any : Year tT1 Year tT2 Year tT ;F( 25D 22D 1DD 0ndin+ oo' !alue of o"eratin+ assets BDD B6D BDD (t te end of year t te oo' !alue of com"any 4s o"eratin+ assets is CDD and te mar'et !alue of its net det is DD. -om"any as no in!estment assets. e analyst ex"ects tat after year tT ;F( will e D and te oo' !alue of o"eratin+ assets will remain constant i.e. at its year tT le!el8. -om"any 4s (-- is B "ercent. Ender tese assum"tions te analyst4s estimate of com"any 4s e$uity !alue at te end of year t is
(.
2BB.26
,. ) 6B.6A -. ) CC.B . ) 5BB.26
5. -onsider te followin+ statement: 3e anormal earnin+s +rowt !aluation model differs from te free cas flow and anormal earnin+s !aluation models in tat it is not matematically e$ui!alent to te di!idend discount model. is statement is
(. ) rue
,.
9alse
6. -onsider te followin+ statement: 3e discounted anormal ;F( +rowt model defines te !alue of o"eratin+ assets as te sum of te ca"itali?ed next7 "eriod ;F( and te is "resent !alue of forecasted ;F( eyond te next "eriod.forecast is statement
(.
rue
,. ) 9alse
A. -onsider te followin+ information aout com"any 04s "erformance and financial "osition in year t: ;et "rofit = 5D ,e+innin+ oo' !alue of usiness assets = DD ,e+innin+ oo' !alue of e$uity = CD -ost of e$uity = 1D "ercent -om"any 04s anormal earnin+s in year t are
(. ) 5D ,.
5
-. :78 1 . ) 2D
B. -onsider te followin+ statement: 3( disad!anta+e of te anormal earnin+s !aluation model is tat it "roduces lower e$uity !alue estimates for firms tat use conser!ati!e accountin+ "olicies suc as accelerated de"reciation8 tan for firms tat use a++ressi!e accountin+ "olicies suc as strai+t7line de"reciation8. is statement is
(. ) rue
,.
9alse
C. (n analyst "roduces te followin+ set of forecasts for com"any 9: Year tT1 Year Year tT ;et "rofit 1DDtT2 1DD 1DD i!idend "ayout ratio 5D% 5D% 5D% (t te end of year t te oo' !alue of com"any 94s e$uity is 5DD. -om"any 9 as no det and its cost of e$uity is 1D "ercent. e analyst ex"ects tat in year tT com"any 9 will li$uidate all its assets at teir oo' !alues and "ay out te "roceeds to its e$uity olders. Ender tese assum"tions te analyst4s estimate of com"any 94s e$uity !alue at te end of year t is
(. ) 112.AD ,. ) 2C.6C -. :78 612.AD .
1D56.66
1D.-onsider te followin+ information aout com"any H4s "erformance and financial "osition in year t and tT1: ;et "rofit year t = 6DN net "rofit year tT1 = BD ,e+innin+ oo' !alue of e$uity year t = CDD i!idend year t = 2DN di!idend year tT1 = 5D -ost of e$uity = 1D "ercent -om"any H4s anormal earnin+s +rowt in year tT1 is
(. ) AD8 ,. :78 16 -.
2D
.
D
11. -om"any L4s current return on e+innin+8 e$uity is 12 "ercent. (n analyst assumes tat te com"any4s @F0 will +row indefinitely at a rate of 2 "ercent. -om"any L4s cost of e$uity is 1D "ercent. Ender tese assum"tions te analyst4s estimate of com"any L4s e$uity !alue7to7oo' multi"le is
(. ) 1.DD ,. ) 1.1D -. ) 1.12 .
1.25
12.In te current year com"any I4s net "rofit is 2D its e+innin+ oo' !alue of e$uity is 1DD and its endin+ oo' !alue of e$uity is 11D. (n analyst "redicts tat com"any I4s next year4s net "rofit will e 5D. e analyst furter assumes tat com"any I4s cost of e$uity is 1D "ercent and its anormal earnin+s +rowt follows te followin+ "rocess: (normal earnin+s +rowt in year tT1 = D.5 x anormal earnin+s +rowt in year t Ender tese assum"tions te analyst4s estimate of com"any I4s e$uity !alue is
(. ) 5DD.DD ,. ) 515.B -. :78 A1.6A .
25CD.DD
1.-onsider te followin+ information aout tree industry "eers: @F0 rice7to7oo' ratio rice7earnin+s ratio eer 1 2D% D.2 5 eer 2 1D% 1 1D eer 25% 1 5 ic of te followin+ statements aout tese industry "eers is correct
(. :78 In!estors ex"ect tat te return on e$uity of te currently est "erformin+ "eer is not sustainale in te future. ,.
In!estors ex"ect tat te return on e$uity of te currently worst "erformin+ "eer will im"ro!e in te future.
-.
In!estors ex"ect tat "eer 14s future anormal earnin+s +rowt will e "ositi!e.
.
#tatements ( and - are correct.
0.
;one of te ao!e statements is correct.
1.-onsider te followin+ statement: 3e e$uity !alue7to7oo' ratio is a function of a8 future returns on e$uity 8 future oo' !alue of e$uity +rowt rates and c8 te cost of e$uity. is statement is
(. :78 rue ,.
9alse <= Index => <= Index =>
Chapter - – )rospecti$e Analysis* Valuation &mplementation Qui Your score is 61%. Questions answered correctly first time: /12 You a!e com"leted te exercise. #ow $uestions one y one
1. ( lar+e 0uro"ean det7free com"any as an estimated e$uity eta of 1.. e ris'7free rate and te mar'et ris' "remium in te com"any4s ome country are "ercent and 5 "ercent res"ecti!ely. is com"any4s cost of e$uity is
(. ) 5 "ercent
,. ) C "ercent -. :78 11 "ercent .
12 "ercent
2. #ome researcers ar+ue tat te firm si?e effect on te cost of e$uity ca"ital as disa""eared. is would im"ly tat
(. ) e cost of e$uity ca"ital of small firms is no lon+er systematically lower tan tat of lar+e firms. ,. ) e e$uity eta of small firms is no lon+er systematically +reater tan tat of lar+e firms. -. ) e e$uity eta of small firms is no lon+er systematically lower tan tat of lar+e firms. .
;one of te ao!e
. -om"any (4s mar'et !alues of det and e$uity are 15D and 2DD res"ecti!ely. e com"any as a statutory and effecti!e tax rate of D "ercent an e$uity eta of 1.5 and an infinitely low "roaility of an'ru"tcy. ,ased on tis information com"any (4s usiness asset eta is
(. ) D.B6 ,. :78 D.CB -.
1.D1
.
2.2C
. -om"any ,4s current e$uity eta det eta and cost of e$uity are 1.6 1.D and 12 "ercent res"ecti!ely. e current and ex"ected future8 tax rate and ris'7free rate are 5 "ercent and "ercent res"ecti!ely. -om"any , currently as a det7to7e$uity ratio of 5D "ercent. e com"any "lans to increase its det7to7e$uity ratio to 1DD "ercent lea!in+ its det eta uncan+ed8. (fter tis increase in le!era+e com"any ,4s cost of e$uity will e
(. ) 1D.D "ercent ,. ) 12.DD "ercent -. :78 1.C6 "ercent .
2D.DD "ercent
5. -om"any -4s cost of e$uity and cost of det are 12 and B "ercent res"ecti!ely. e current tax rate is D "ercent. -om"any - as a det7to7 e$uity ratio of 5D "ercent. -om"any -4s wei+ted a!era+e cost of ca"ital is
(. ) B.D "ercent ,. :78 C.6 D "ercent -.
1D.DD "ercent
.
1D.6A "ercent
6. (n analyst "roduces te followin+ series of annual di!idend forecasts for com"any : 0x"ected di!idend end of8 year tT1 = 1DN 0x"ected di!idend end of8 year tT2 = 2DN 0x"ected di!idend end of8 year tT = 1D. e analyst furter ex"ects tat com"any 4s di!idends will +row indefinitely at a rate of 2 "ercent after year tT. -om"any 4s cost of e$uity e$uals 1D "ercent. Ender tese assum"tions te analyst4s estimate of com"any 4s e$uity !alue at te end of year t is
(. :78 12B.C ,.
12D.22
-.
1DB.26
.
6.6
A. (n analyst "roduces te followin+ set of forecasts for com"any 0: Year tT1 Year tT2 Year tT
;et "rofit 1DD 12D 6D 0ndin+ oo' !alue of usiness assets 1DD 1D6D 1DDD 0ndin+ oo' !alue of det A2D AD BDD (t te end of year t com"any 04s oo' !alues of usiness assets and det are 1DDD and ADD res"ecti!ely. e analyst ex"ects tat after year tT com"any 0 will reac a com"etiti!e e$uilirium i.e. will earn ?ero anormal earnin+s. -om"any 04s cost of e$uity is 1D "ercent. Ender tese assum"tions te analyst4s estimate of com"any 04s e$uity !alue at te end of year t is
(. ) DA.C6 ,. ) .2D -. :78 5B.2 .
5DA.C6
B. (n analyst "roduces te followin+ set of forecasts for com"any 9: Year tT1 Year tT2 Year tT ;et "rofit 1DD 1DD 1DD i!idend "ayout ratio 5D% 5D% 5D% (t te end of year t te oo' !alue of com"any 94s e$uity is 5DD. -om"any 9 as no det and its cost of e$uity is 1D "ercent. e analyst ex"ects tat in and after year tT com"any 9 will earn anormal earnin+s on te sales it ad in year tT ut earn ?ero anormal earnin+s on incremental sales eyond tat le!el. Ender tese assum"tions te analyst4s estimate of com"any 94s e$uity !alue at te end of year t is
(. ) 12.A5 ,. ) B5.CD -. :78 1.22 .
512.AD
C. -onsider te followin+ information aout com"any H4s "erformance and financial "osition in year t and tT1:
;et "rofit year t = 6DN net "rofit year tT1 = BD ,e+innin+ oo' !alue of e$uity year t = CDD i!idend year t = 2DN di!idend year tT1 = 5D -ost of e$uity = 1D "ercent If an analyst assumes tat com"any H4s anormal earnin+s will e ?ero in year tT2 and eyond er estimate of te com"any4s terminal e$uity8 !alue at te end of year tT1 under te anormal earnin+s +rowt !aluation metod is
(.
D
,.
1
-.
1D8
. :78 1D
1D.-onsider te followin+ information aout com"any H4s "erformance and financial "osition in year t and tT1: ;et "rofit year t = 6DN net "rofit year tT1 = BD ,e+innin+ oo' !alue of e$uity year t = CDD i!idend year t = 2DN di!idend year tT1 = 5D -ost of e$uity = 1D "ercent If an analyst assumes tat com"any H4s anormal earnin+s will remain constant in year tT2 and eyond er estimate of te com"any4s terminal e$uity8 !alue at te end of year tT1 under te anormal earnin+s +rowt !aluation metod is
(. :78 D ,.
1
-.
1D8
.
1D
11. e !alue of -om"any J4s o"eratin+ assets e$uals 55 million te !alue of its in!estment assets e$uals 5 million te "resent !alue of its tax sield on
det e$uals 6 million and te !alue of its det e$uals 25 million. is im"lies tat te !alue of -om"any J4s e$uity is
(.
BCC million
,. :78 D C million -. ) 5 million .
DD million
12.-onsider te followin+ statements: #tatement I: 3(n indirect8 asset7ased a""roac to !aluin+ e$uity always "roduces te same e$uity !alue estimate as a direct8 e$uity7ased a""roac to !aluin+ e$uity. #tatement II: 3(n indirect8 asset7ased a""roac to !aluin+ e$uity is more accurate tan te e$uity7ased a""roac if a8 discount rates are eld constant ut 8 le!era+e is ex"ected to can+e si+nificantly o!er te forecast ori?on.
(.
Fnly statement I is true
,.
Fnly statement II is true
-. :78 ,ot statements are false <= Index => <= Index =>
Chapter . – /0uity Security Analysis Qui Your score is 2%. Questions answered correctly first time: 2/B You a!e com"leted te exercise. #ow $uestions one y one
1. ic of te followin+ statements aout collecti!e in!estment funds is correct
(. ) Income funds ty"ically in!est in com"anies tat +enerate i+ anormal earnin+s. ,. ) Hrowt funds ty"ically in!est in com"anies wit i+ sales +rowt. -. :78 *ar'et neutral funds ty"ically old security "ortfolios wit etas close to ?ero. .
( , and - are correct.
2. -onsider te followin+ statement: 3(ccordin+ to te 0fficient *ar'ets Ly"otesis in!estment strate+ies tat are "urely ased on "ulicly a!ailale information cannot systematically +enerate "ositi!e anormal returns. is statement is
(.
rue
,. ) 9alse
. -onsider te followin+ statement: 3(cti!e "ortfolio mana+ement relies more ea!ily on financial statement analysis tan "assi!e "ortfolio mana+ement. is statement is
(. :78 rue ,.
9alse
. -onsider te followin+ statement: 3ecnical security analysis relies more ea!ily on financial statement information tan fundamental security analysis. is statement is
(.
rue
,. :78 9alse
5. -onsider te followin+ statement: 3In contrast wit formal !aluation metods informal !aluation metods i+nore financial statement information. is statement is
(. ) rue ,.
9alse
6. Fn Ranuary 1 2D1D -om"any S4s sare "rice is 11.25 "er sare. e com"any4s oo' !alue of e$uity "er sare is 5 ex"ected net "rofit "er sare for fiscal year 2D1D is 5 and te cost of e$uity is 1D "ercent. at are te mar'et4s ex"ectations aout te lon+7term anormal earnin+s +rowt rate for com"any S
(. ) D "ercent ,. ) 1 "ercent -. :78 2 "ercent .
"ercent
A. ic of te followin+ statements is not correct @esearc as sown tat
(.
(nalysts4 forecasts and recommendations tend to e systematically iased
,.
(nalysts tend to e more accurate in forecastin+ near7term "erformance tan in forecastin+ lon+7term "erformance
-.
(nalysts4 forecasts are +enerally more accurate tan time7series forecasts
. :78 (nalysts4 o"timism in forecasts and recommendations8 as sustantially increased durin+ te late 1CCDs 0. ) ;one of te ao!e
B. -onsider te followin+ statement: 3ast researc findin+s a!e consistently sown tat collecti!e in!estment and "ension funds systematically out"erform te mar'et index. is statement is
(. ) rue ,.
9alse <= Index => <= Index =>
Chapter 1 – Credit Analysis and 2istress )rediction Qui Your score is 66%. Questions answered correctly first time: 6/12 You a!e com"leted te exercise. #ow $uestions one y one
1. ic of te followin+ industries is te least det intensi!e industry
(. :78 armaceutical industry ,.
(ir trans"ortation industry
-.
0lectric ser!ices industry
.
Lotel industry
2. -onsider te followin+ statement: 3&ar+e firms tend to a! e i+er le!era+e tan small firms ecause tey a!e lower usiness ris's on a!era+e8. is statement is
(. :78 rue ,.
9alse
. *ulti"le an' orrowin+ is
(. ) *ost common in countries wit stron+ le+al "rotection of creditors. ,. :78 *ost common in countries wit wea' le+al "rotection of creditors. -.
;ot associated wit te de+ree of le+al "rotection of creditors.
. #u""lier financin+ is
(. ) *ost common in countries wit stron+ le+al "rotection of creditors. ,. :78 *ost common in countries wit wea' le+al "rotection of creditors. -.
;ot associated wit te de+ree of le+al "rotection of creditors.
5. -onsider te followin+ statement: 3Fne mecanism tat commercial lenders use to reduce credit ris' is to len+ten te maturity of te loans tey extend. is statement is
(.
rue
,. :78 9alse
6. In cases were a orrower4s cas needs are difficult to antici"ate it is most li'ely to ma'e use of
(. ) erm loans ,. ) &ease financin+ -. :78 F"en lines of credit .
*ort+a+e loans
A. ic of te followin+ ty"es of collateral is +enerally te most desirale form of security
(.
In!entory
,.
@eal estate
-.
0$ui"ment
. :78 @ecei!ales
B. -onsider te followin+ information aout com"any (4s "erformance and financial "osition in year t: 0arnin+s efore interest and taxes = C5N e"reciation = 5 Interest = 5 axes = 2A reference di!idends = D et re"ayment = 2D -om"any (4s fund flow co!era+e ratio in year t e$uals:
(.
.DD
,. ) .BD -. ) .6D . :78 2.CB
C. ic of te followin+ is not a financial co!enant tat is commonly used in loan contracts
(. ) *aintenance of a minimum fund flow co!era+e ratio ,. ) *aintenance of a maximum ratio of total liailities to net wort -. :78 *aintenance of a minimum return on assets
.
*aintenance of a minimum net wor'in+ ca"ital alance
1D.-onsider te followin+ statement: 3e numer of 0uro"ean firms tat recei!es an U(4 ratin+ ty"ically exceeds te numer of 0uro"ean firms tat recei!es an U((4 ratin+. is statement is
(. :78 rue ,.
9alse
11. ic of te followin+ !ariales is "ositi!ely associated wit a firm4s det ratin+
(. ) ;et det to net ca"ital ,. ) 9irm si?e -. ) ;F( to net ca"ital . ) ( , and 0.
, and -
12.-om"any ) as a si+nificantly lower (ltman S score tan com"any Y. is im"lies tat
(. :78 -om"any )4s an'ru"tcy "roaility exceeds com"any Y4s an'ru"tcy "roaility ,.
-om"any Y4s an'ru"tcy "roaility exceeds com"any )4s an'ru"tcy "roaility
<= Index => <= Index =>
Chapter 11 – 3ergers and Ac0uisitions
Qui Your score is D%. Questions answered correctly first time: 2/1D You a!e com"leted te exercise. #ow $uestions one y one
1. -onsider te followin+ statement: 3( mer+er etween a "armaceutical firm wit a stron+ researc de"artment and a "armaceutical firm wit a stron+ sales force is a ty"ical exam"le of mer+ers tat aim to ta'e ad!anta+e of economies of scale. is statement is
(. ) rue ,.
9alse
2. -onsider te followin+ statement: 3*er+ers tat el" to "ro!ide low7cost financin+ to a financially constrained tar+et are more li'ely to occur if te de+ree of information asymmetry etween te tar+et4s mana+ement and "ulic ca"ital mar'ets is i+. is statement is
(. :78 rue ,.
9alse
. -onsider te followin+ statement: 3In te 0E mer+ ers tat increase "roduct7 mar'et rents are more li'ely to e disallowed y te 0uro"ean -ommission tan mer+ers tat do not. is statement is
(. :78 rue ,.
9alse
. ic of te followin+ moti!ations for mer+ers is ty"ically not !alued y te ac$uirer4s sareolders
(. ) -a"turin+ tax enefits tat arise from o"eratin+ tax loss carryforwards ,. ) Im"ro!in+ tar+et mana+ement -. ) Increasin+ "roduct7mar'et rents .
@educin+ usiness ris' trou+ di!ersification of o"erations
5. ic of te followin+ statements is not correct
(. ) (c$uisition "remiums tend to e +reater in ostile ta'eo!ers tan in friendly ta'eo!ers ,. :78 (c$uisition "remiums tend to e +reater in sare7for7sare mer+ers i.e. e$uity7financed ta'eo!ers8 tan in cas7financed ta'eo!ers -.
(c$uisition "remiums tend to e +reater if te tar+et com"any is located in a country wit strict ta'eo!er rules tan if te tar+et com"any is located in a country wit wea' ta'eo!er rules
6. -onsider te followin+ statement: 3(n ad!anta+e of usin+ "rice7earnin+s multi"les to estimate te !alue of a tar+et to te ac$uirer is tat it focuses on te near7term enefits of te mer+er. is statement is
(. ) rue ,.
9alse
A. (c$uisitions financed wit det or sur"lus cas are more li'ely to occur if
(. ) e ac$uirin+ firm is close to financial distress ,. ) ere is low information asymmetry re+ardin+ te ac$uisition enefits etween te ac$uirer4s mana+ement and its sareolders
-. :78 If te ac$uirin+ firm as a "rimary sareolder wo controls etween D and 6D "ercent of te e$uity !otes .
;one of te ao!e
B. -onsider te followin+ statement: 3( "otential ac$uisition is more li'ely to e com"leted if te tar+et com"any as not im"lemented +olden "aracutes for its mana+ement. is statement is
(. ) rue ,.
9alse
C. ic of te followin+ mecanisms can e used as ta'eo!er defenses
(. ) ( !otin+ ca" ,. ) e issuance of de"ository recei"ts -. ) #$uee?e7out rules . ) ( , and 0.
( and ,
1D.ic of te followin+ rules a!e een included in te 0E a'eo!er irecti!e to "re!ent mana+ement entrencment and "rotect minority sareolders durin+ 0uro"ean ta'eo!ers
(. ) e oard7neutrality rule ,. ) e e$ual7treatment rule -. ) e maximum7id rule . :78 ( and ,
0.
( and <= Index =>
