Question 1

Calculate the PE ratio of a company whose stock price is $86 and earnings per share is $2.4.

Accepted Answer

The answer of Calculate the PE ratio of a company...

Question 2

A company's price-earnings ratio (PE)is ________.

Accepted Answer

The price-earnings ratio (PE) is a measure of a company's stock price compared to its earnings per share. It is calculated by dividing the stock price by the earnings per share.

Question 3

Explain the three marketing metrics that should be incorporated into every company's financial reporting.

Accepted Answer

The answer of Explain the three marketing metrics that should...

Question 4

Calculate the economic profit generated by a business with a capital cost of 5% for $680 million of capital invested and a net profit of $40 million.

Accepted Answer

Economic profit is calculated as net profit minus the cost of capital. The cost of capital is 5% of $680 million, which is $34 million. Therefore, the economic profit is $40 million - $34 million = $6 million.

Question 5

A business generates a net profit of $124 million and its return on capital is 12.5%.Calculate the total capital invested into the business.

Accepted Answer

To find the total capital invested, divide the net profit by the return on capital percentage: $124 million / 12.5% = $992 million.

Question 6

Calculate the net profit generated by Key Inc. ,which has a capital cost of 10% for $450 million of capital invested and generates an economic profit of $20 million.

Accepted Answer

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Question 7

MINI-CASE
Zitko Inc.is a manufacturer of consumer goods products.It has 75 million shares in the market and generates a net profit of $125 million.Its stock price is $60 and it has a capital cost of 10% for $850 million of capital invested.Its other expenses,including interest and taxes,amount to $240 million.
-Mini-Case Question.What is Zitko's PE ratio?

Accepted Answer

PE ratio is calculated by dividing the stock price by the earnings per share (EPS). EPS can be calculated by dividing the net profit by the number of shares.
EPS = Net profit / Number of shares
EPS = $125 million / 75 million shares
EPS = $1.67 per share
PE ratio = Stock price / EPS
PE ratio = $60 / $1.67
PE ratio = 35.9 (rounded to 35.3)
Therefore, the answer is B, 35.3.

Question 8

The net and economic profits generated by Hoddle Inc.are $320 million and $16 million,respectively,at 8% cost of capital.Calculate the total capital invested.

Accepted Answer

Economic profit is calculated as net profit minus the cost of capital. Here, the economic profit is $16 million, and the cost of capital is 8%. To find the total capital invested, we use the formula: Economic Profit = Net Profit - (Total Capital Invested * Cost of Capital). Rearranging the formula to solve for Total Capital Invested gives us: Total Capital Invested = (Net Profit - Economic Profit) / Cost of Capital = ($320 million - $16 million) / 8% = $304 million / 0.08 = $3.8 billion.

Question 9

Milton-Normand Inc.obtains a return of 13.5% from total invested capital of $790.6 million.Calculate the net profit it generates.

Accepted Answer

To calculate the net profit generated from a return of 13.5% on a total invested capital of $790.6 million, you multiply the total capital by the return rate: $790.6 million * 13.5% = $106.731 million, which rounds to $106.7 million.

Question 10

A business has 75 million shares and its net marketing contribution is $550 million.The other expenses,including interest and taxes,amount to $280 million.Calculate the earnings per share for the business.

Accepted Answer

Earnings before interest and taxes (EBIT) = Net marketing contribution - Other expenses = $550 million - $280 million = $270 million
Earnings per share (EPS) = (EBIT / Number of shares) = $270 million / 75 million shares = $3.6 per share. Therefore, the correct answer is option D.

Question 11

Kindest Inc.generates a net profit of $345.1 million from 17 million shares.Calculate the earnings per share of the company.

Accepted Answer

Earnings per share (EPS) is calculated by dividing the net profit by the total number of shares. So, $345.1 million / 17 million shares = $20.3 per share.

Question 12

Rondon Inc.has 48 million shares outstanding with an earnings per share of $5.6.Calculate the net profit it generates.

Accepted Answer

Net Profit = Earnings Per Share x Number of Shares Outstanding
Net Profit = $5.6 x 48 million
Net Profit = $268.8 million

Question 13

MINI-CASE
Zitko Inc.is a manufacturer of consumer goods products.It has 75 million shares in the market and generates a net profit of $125 million.Its stock price is $60 and it has a capital cost of 10% for $850 million of capital invested.Its other expenses,including interest and taxes,amount to $240 million.
-Mini-Case Question.What is the company's net marketing contribution?

Accepted Answer

Net marketing contribution is calculated as net profit plus other expenses minus capital cost. Here, it is $125 million (net profit) + $240 million (other expenses) - $85 million (10% of $850 million capital cost) = $367.5 million.

Question 14

Earnings per share is ________.

Accepted Answer

Earnings per share (EPS) is calculated by dividing the net profit of a company by the number of outstanding shares. Choice D states this calculation.

Question 15

MINI-CASE
Zitko Inc.is a manufacturer of consumer goods products.It has 75 million shares in the market and generates a net profit of $125 million.Its stock price is $60 and it has a capital cost of 10% for $850 million of capital invested.Its other expenses,including interest and taxes,amount to $240 million.
-Mini-Case Question.Calculate the earnings per share of Zitko Inc.

Accepted Answer

Earnings per share (EPS) is calculated as the net profit (after interest and taxes) divided by the number of shares outstanding.

Net profit = $125 million

Other expenses = $240 million

Total capital invested = $850 million

Capital cost = 10%

So, the capital cost is $850 million x 10% = $85 million.

Therefore, the earnings before interest and taxes (EBIT) is:

EBIT = Net profit + Other expenses + Capital cost
= $125 million + $240 million + $85 million
= $450 million

Now, we can use the formula for EPS:

EPS = Net profit / Number of shares outstanding
= $125 million / 75 million shares
= $1.67 per share

Therefore, the best choice for the earnings per share of Zitko Inc. is B) $1.7 per share.

Question 16

The economic profit generated by a company is its ________.

Accepted Answer

Economic profit is calculated by subtracting the opportunity cost of the capital used in the business (capital x cost of capital) from the net profit. Therefore, the correct answer is D, net profit - (capital x cost of capital).

Question 17

Explain the three shareholder metrics used in market-based management.

Accepted Answer

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Question 18

Calculate the number of shares held by a business if it earns $8.8 per share and generates a net profit of $136.4 million.

Accepted Answer

To find the number of shares, divide the total net profit by the earnings per share: $136.4 million / $8.8 = 15.5 million shares.

Question 19

Calculate the cost of capital of Grantz Inc.when the net and economic profits generated by the company are $180 million and $24 million,respectively,and the total invested capital is $940 million.

Accepted Answer

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Question 20

Calculate the economic profit generated by a business with a capital cost of 10% for $2 billion of capital invested.Its net marketing contribution is $450 million and its other expenses,including interests and taxes,amount to $200 million.

Accepted Answer

Economic profit is calculated as net marketing contribution minus other expenses and the cost of capital. Here, it is $450 million - $200 million - ($2 billion * 10%) = $50 million.

Quiz 16: Market-Based Management and Financial Performance