## Mirror for Humanity Study Set 1

Anthropology

## Quiz 14 :

Company Analysis and Stock Valuation

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Q84 Q84 Q84

Exhibit 14.2
USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S)
Modular Industries currently has a 16% annual growth rate while the market average is 6 percent. The market multiple is 10.
-Refer to Exhibit 14.2. Determine the justified P/E ratio for Modular Industries assuming Modular can maintain its superior growth rate for the next 5 years.

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Q85 Q85 Q85

Exhibit 14.2
USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S)
Modular Industries currently has a 16% annual growth rate while the market average is 6 percent. The market multiple is 10.
-Refer to Exhibit 14.2. Determine the P/E ratio for Modular Industries assuming Modular can maintain its superior growth rate for the next 8 years.

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Q86 Q86 Q86

Exhibit 14.3
USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S)
Harcourt Industries currently has an 18% annual growth rate while the market average is 8 percent. The market multiple is 12.
-Refer to Exhibit 14.3. Determine the justified P/E ratio for Harcourt Industries assuming Harcourt can maintain its superior growth rate for the next 9 years.

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Q87 Q87 Q87

Exhibit 14.3
USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S)
Harcourt Industries currently has an 18% annual growth rate while the market average is 8 percent. The market multiple is 12.
-Refer to Exhibit 14.3. Determine the P/E ratio for Harcourt Industries assuming Harcourt can maintain its superior growth rate for the next 3 years.

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Q88 Q88 Q88

Exhibit 14.4
USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S)
The Valentine Company currently has a 14% annual growth rate while the market average is 4 percent. The market multiple is 15.
-Refer to Exhibit 14.4. Determine the justified P/E ratio for the Valentine Company assuming Valentine can maintain its superior growth rate for the next 10 years.

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Q89 Q89 Q89

Exhibit 14.4
USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S)
The Valentine Company currently has a 14% annual growth rate while the market average is 4 percent. The market multiple is 15.
-Refer to Exhibit 14.4. Determine the P/E ratio for the Valentine Company assuming Valentine can maintain its superior growth rate for the next 5 years.

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Q99 Q99 Q99

A firm has a current price of $40 a share, an expected growth rate of 11 percent and expected dividend per share (D1) of $2. Given its risk you have a required rate of return for it of 12 percent. Your expected rate of return and investment decision is as follows:

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Q100 Q100 Q100

A firm has a current price of $40 a share, an expected growth rate of 11 percent and expected dividend per share (D1) of $2. Given its risk you have a required rate of return for it of 12 percent. Assuming that you expect the stock price to increase to $42 during the investment period, your expected rate of return and decision would be:

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Q101 Q101 Q101

Based on the information provided, calculate the intrinsic value in 2010 of a share of INV Corp. using the FCFF (free cash flow to the firm) model. For 2010 the FCFF was $30,000, total debt was $20,000, and there were 12000 shares outstanding. The required rate of return is 9% and the estimated growth rate in FCFF is 6.5%.

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Q102 Q102 Q102

Based on the information provided, calculate the intrinsic value in 2010 of a share of INV Corp. using the Present Value of Earnings Model (infinite holding period). For 2010 net income was $250,000, total debt was $50,000, and there were 206,263 shares outstanding. The required rate of return is 12% and the estimated growth rate in earnings is 5.5%.

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Q103 Q103 Q103

You are provided with the following information about Javier Corporation. Sales for the year 2010 were $500,000, the Net Profit Margin (NPM) was 15%. Analysts project sales to grow by 12% next year (that is 2011). However, because of more competition, the NPM is expected to decline by 10% for the year 2010. The expected P/E multiple for the year 2011 is 22. The total number of shares outstanding is 20,000. Use the earnings multiplier model to calculate the expected price for Javier Corporation in the year 2011.

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Q104 Q104 Q104

Exhibit 14.6
USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S)
You are provided with the following information on Kayray Corporation. Your ultimate objective is to calculate the EVA for the firm.
-Refer to Exhibit 14.6. Calculate the adjusted operating profits before taxes.

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Q105 Q105 Q105

Exhibit 14.6
USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S)
You are provided with the following information on Kayray Corporation. Your ultimate objective is to calculate the EVA for the firm.
-Refer to Exhibit 14.6. Calculate the cash operating expenses for the firm.

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Q106 Q106 Q106

Exhibit 14.6
USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S)
You are provided with the following information on Kayray Corporation. Your ultimate objective is to calculate the EVA for the firm.
-Refer to Exhibit 14.6. Calculate the capital for the firm.

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Q107 Q107 Q107

Exhibit 14.6
USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S)
You are provided with the following information on Kayray Corporation. Your ultimate objective is to calculate the EVA for the firm.
-Refer to Exhibit 14.6. Calculate the dollar cost of capital.

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Q109 Q109 Q109

Exhibit 14.6
USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S)
You are provided with the following information on Kayray Corporation. Your ultimate objective is to calculate the EVA for the firm.
-The Peterson Company has FCFF of $1000. FCFF is expected to grow by 12% next year. The cost of capital is 12% and the level of debt is $5000. The number of shares outstanding is 500. Calculate the firm's share price.

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Q110 Q110 Q110

Exhibit 14.6
USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S)
You are provided with the following information on Kayray Corporation. Your ultimate objective is to calculate the EVA for the firm.
-The Pekay Company has FCFE of $800. FCFE is expected to grow by 7% next year. The cost of capital is 7% and the level of debt is $4000. The number of shares outstanding is 700. Calculate the firm's share price.

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Q111 Q111 Q111

Exhibit 14.7
USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S)
At the end of the year 2010 the BRK Corporation had free cash flow to equity (FCFE) of $250,000 and shares outstanding of 200,000. The company projects the following annual growth rates in FCFE:
From year 2019 onward growth in FCFE is expected to remain constant at 5% per year. The stock has a beta of 1.3 and the current market price is $55. Currently the yield on 10-year Treasury notes is 5% and the equity risk premium is 4%.
-Refer to Exhibit 14.7. Calculate the required rate of return on equity.

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Q112 Q112 Q112

Exhibit 14.7
USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S)
At the end of the year 2010 the BRK Corporation had free cash flow to equity (FCFE) of $250,000 and shares outstanding of 200,000. The company projects the following annual growth rates in FCFE:
From year 2019 onward growth in FCFE is expected to remain constant at 5% per year. The stock has a beta of 1.3 and the current market price is $55. Currently the yield on 10-year Treasury notes is 5% and the equity risk premium is 4%.
-Refer to Exhibit 14.7. Calculate the present value now (Year 2010) of FCFE during the period of increasing growth (that is for years 2011 to 2014).

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Q113 Q113 Q113

Exhibit 14.7
USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S)
At the end of the year 2010 the BRK Corporation had free cash flow to equity (FCFE) of $250,000 and shares outstanding of 200,000. The company projects the following annual growth rates in FCFE:
From year 2019 onward growth in FCFE is expected to remain constant at 5% per year. The stock has a beta of 1.3 and the current market price is $55. Currently the yield on 10-year Treasury notes is 5% and the equity risk premium is 4%.
-Refer to Exhibit 14.7. Calculate the present value now (Year 2010) of FCFE during the period of declining growth (that is for years 2015 to 2018).

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Q114 Q114 Q114

Exhibit 14.7
USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S)
At the end of the year 2010 the BRK Corporation had free cash flow to equity (FCFE) of $250,000 and shares outstanding of 200,000. The company projects the following annual growth rates in FCFE:
From year 2019 onward growth in FCFE is expected to remain constant at 5% per year. The stock has a beta of 1.3 and the current market price is $55. Currently the yield on 10-year Treasury notes is 5% and the equity risk premium is 4%.
-Refer to Exhibit 14.7. Calculate the present value now (Year 2010) of FCFE during the period of constant growth (that is for years 2019 onwards).

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Q115 Q115 Q115

Exhibit 14.7
USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S)
At the end of the year 2010 the BRK Corporation had free cash flow to equity (FCFE) of $250,000 and shares outstanding of 200,000. The company projects the following annual growth rates in FCFE:
From year 2019 onward growth in FCFE is expected to remain constant at 5% per year. The stock has a beta of 1.3 and the current market price is $55. Currently the yield on 10-year Treasury notes is 5% and the equity risk premium is 4%.
-Refer to Exhibit 14.7. Calculate the intrinsic value of the stock now (Year 2010).

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Q116 Q116 Q116

Exhibit 14.8
USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S)
At the end of the year 2010 the CKL Corporation had operating free cash flow (OFCF) of $300,000 and shares outstanding of 100,000. Total debt is currently $10,000,000. The company projects the following annual growth rates in OFCF
From year 2019 onward growth in OFCF is expected to remain constant at 5% per year. The stock has a beta of 1.1 and the current market price is $80. Currently the yield on 10-year Treasury notes is 5% and the equity risk premium is 4%. The firm can raise debt at a pre-tax cost of 9%. The tax rate is 25%. The proportion of equity is 55% and the proportion of debt is 45%.
-Refer to Exhibit 14.8. Calculate the required rate of return on equity.

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Q117 Q117 Q117

Exhibit 14.8
USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S)
At the end of the year 2010 the CKL Corporation had operating free cash flow (OFCF) of $300,000 and shares outstanding of 100,000. Total debt is currently $10,000,000. The company projects the following annual growth rates in OFCF
From year 2019 onward growth in OFCF is expected to remain constant at 5% per year. The stock has a beta of 1.1 and the current market price is $80. Currently the yield on 10-year Treasury notes is 5% and the equity risk premium is 4%. The firm can raise debt at a pre-tax cost of 9%. The tax rate is 25%. The proportion of equity is 55% and the proportion of debt is 45%.
-Refer to Exhibit 14.8. Calculate the weighted average cost of capital (WACC).

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Q118 Q118 Q118

Exhibit 14.8
USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S)
At the end of the year 2010 the CKL Corporation had operating free cash flow (OFCF) of $300,000 and shares outstanding of 100,000. Total debt is currently $10,000,000. The company projects the following annual growth rates in OFCF
From year 2019 onward growth in OFCF is expected to remain constant at 5% per year. The stock has a beta of 1.1 and the current market price is $80. Currently the yield on 10-year Treasury notes is 5% and the equity risk premium is 4%. The firm can raise debt at a pre-tax cost of 9%. The tax rate is 25%. The proportion of equity is 55% and the proportion of debt is 45%.
-Refer to Exhibit 14.8. Calculate the present value now (Year 2010) of OFCF during the period of declining growth (that is for years 2011 to 2014).

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Q119 Q119 Q119

Exhibit 14.8
USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S)
At the end of the year 2010 the CKL Corporation had operating free cash flow (OFCF) of $300,000 and shares outstanding of 100,000. Total debt is currently $10,000,000. The company projects the following annual growth rates in OFCF
From year 2019 onward growth in OFCF is expected to remain constant at 5% per year. The stock has a beta of 1.1 and the current market price is $80. Currently the yield on 10-year Treasury notes is 5% and the equity risk premium is 4%. The firm can raise debt at a pre-tax cost of 9%. The tax rate is 25%. The proportion of equity is 55% and the proportion of debt is 45%.
-Refer to Exhibit 14.8. Calculate the present value now (Year 2010) of OFCF during the period of declining growth (that is for years 2015 to 2018).

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Q120 Q120 Q120

Exhibit 14.8
USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S)
At the end of the year 2010 the CKL Corporation had operating free cash flow (OFCF) of $300,000 and shares outstanding of 100,000. Total debt is currently $10,000,000. The company projects the following annual growth rates in OFCF
From year 2019 onward growth in OFCF is expected to remain constant at 5% per year. The stock has a beta of 1.1 and the current market price is $80. Currently the yield on 10-year Treasury notes is 5% and the equity risk premium is 4%. The firm can raise debt at a pre-tax cost of 9%. The tax rate is 25%. The proportion of equity is 55% and the proportion of debt is 45%.
-Refer to Exhibit 14.8. Calculate the present value now (Year 2010) of OFCF during the period of constant growth (that is for years 2019 onwards).

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Q121 Q121 Q121

Exhibit 14.8
USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S)
At the end of the year 2010 the CKL Corporation had operating free cash flow (OFCF) of $300,000 and shares outstanding of 100,000. Total debt is currently $10,000,000. The company projects the following annual growth rates in OFCF
From year 2019 onward growth in OFCF is expected to remain constant at 5% per year. The stock has a beta of 1.1 and the current market price is $80. Currently the yield on 10-year Treasury notes is 5% and the equity risk premium is 4%. The firm can raise debt at a pre-tax cost of 9%. The tax rate is 25%. The proportion of equity is 55% and the proportion of debt is 45%.
-Refer to Exhibit 14.8. Calculate the total intrinsic value of the firm.

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Q122 Q122 Q122

Exhibit 14.8
USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S)
At the end of the year 2010 the CKL Corporation had operating free cash flow (OFCF) of $300,000 and shares outstanding of 100,000. Total debt is currently $10,000,000. The company projects the following annual growth rates in OFCF
From year 2019 onward growth in OFCF is expected to remain constant at 5% per year. The stock has a beta of 1.1 and the current market price is $80. Currently the yield on 10-year Treasury notes is 5% and the equity risk premium is 4%. The firm can raise debt at a pre-tax cost of 9%. The tax rate is 25%. The proportion of equity is 55% and the proportion of debt is 45%.
-Refer to Exhibit 14.8. Calculate the intrinsic value of the stock now (Year 2010).

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Q123 Q123 Q123

Exhibit 14.9
USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S)
The Rollerball Corporation's industry averages are as follows:
Net Profit Margin = 7.5%; Total Asset Turnover = 2.2; Total Assets/Equity = 2.0
Rollerball Corporation has the following financial statements for year ending 12/31/2008. (000's omitted)
-Refer to Exhibit 14.9. Calculate Rollerball Corporation's Net Profit Margin.

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Q124 Q124 Q124

Exhibit 14.9
USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S)
The Rollerball Corporation's industry averages are as follows:
Net Profit Margin = 7.5%; Total Asset Turnover = 2.2; Total Assets/Equity = 2.0
Rollerball Corporation has the following financial statements for year ending 12/31/2008. (000's omitted)
-Refer to Exhibit 14.9. Calculate Rollerball Corporation's Total Asset Turnover.

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Q125 Q125 Q125

Exhibit 14.9
USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S)
The Rollerball Corporation's industry averages are as follows:
Net Profit Margin = 7.5%; Total Asset Turnover = 2.2; Total Assets/Equity = 2.0
Rollerball Corporation has the following financial statements for year ending 12/31/2008. (000's omitted)
-Refer to Exhibit 14.9. Calculate Rollerball Corporation's Total Assets/Equity ratio.

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Q126 Q126 Q126

Exhibit 14.9
USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S)
The Rollerball Corporation's industry averages are as follows:
Net Profit Margin = 7.5%; Total Asset Turnover = 2.2; Total Assets/Equity = 2.0
Rollerball Corporation has the following financial statements for year ending 12/31/2008. (000's omitted)
-Refer to Exhibit 14.9. Calculate the return on equity (ROE) for Rollerball Corporation and the Industry. Rollerball Industry Average

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Q127 Q127 Q127

Exhibit 14.9
USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S)
The Rollerball Corporation's industry averages are as follows:
Net Profit Margin = 7.5%; Total Asset Turnover = 2.2; Total Assets/Equity = 2.0
Rollerball Corporation has the following financial statements for year ending 12/31/2008. (000's omitted)
-Refer to Exhibit 14.9. Calculate the sustainable growth rate for Rollerball Corporation.

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Q128 Q128 Q128

Exhibit 14.9
USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S)
The Rollerball Corporation's industry averages are as follows:
Net Profit Margin = 7.5%; Total Asset Turnover = 2.2; Total Assets/Equity = 2.0
Rollerball Corporation has the following financial statements for year ending 12/31/2008. (000's omitted)
-Johnson Company just paid an annual dividend of $1.75. The next dividend will be paid one year from today. Johnson Company expects a constant growth of 5% in dividends forever. The required rate of return for this company's common stock is 13%. What is the value of one share of common stock?

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