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发表于 2007-5-13 15:50 | 只看该作者

[LEVEL II 模拟试题4] Mock Level II - Question 7

模拟试题, class

Question 7 - 38715

The Erica Company has the following financial information:

Balance Sheet
($ thousands)

Assets

2004

2003

Cash & Cash Equiv.

8,729

8,633

Short-term Investments

5,167

21

Accounts Receivable

791

685

Inventories

6,142

6,832

Other Current Assets

554

425

Total Current Assets

21,383

16,596

 

 

 

Property, Plant, and Equipment

8,485

7,571

Other Assets

494

34

Total Assets

30,362

24,201

 

 

 

Liabilities

 

 

Accounts Payable

5,288

4,895

Deferred Income Tax

538

492

Long-Term Debt

4,821

4,962

Total Liabilities

10,647

10,349

 

 

 

Common Stock

9,464

8,918

Retained Earnings

10,251

4,934

Total Equity

19,715

13,852

Total Liabilities & Equity

30,362

24,201

 

Income Statement
($ thousands)

 

 

2004

2003

Sales

9,889

8,128

Cost of Goods Sold

4,691

4,173

Gross Profit

5,198

3,955

Sales, Gen. & Admin. Exp.

3,960

2,879

EBITDA

1,238

1,076

Depreciation

479

426

Operating Profit

759

650

Interest Exp.

59

55

Pretax Income

700

595

Taxes

210

178

Net Income

490

417

Footnotes:

  • The marginal tax rate is 40 percent.

  • As of December 31, 2003, Erica Company had 18,650,000 shares outstanding with a share price of $10. The pretax yield on the debt is 7 percent. The debt trades very close to par.

  • The risk-free rate is 3 percent and the market risk premium is 8 percent. Erica Company’s beta is 1.26.

Part 1)
Which of the following ratios posted the biggest percentage change from year end 2003 to year end 2004?

A)

Return on equity.

B)

Debt/capital ratio.

C)

Return on assets.

D)

Financial leverage.

Part 2)
If gross profits rise, operating profits are flat, and capital spending declines in 2005, which of the following ratios is most likely to rise?

A)

Financial leverage.

B)

Inventory turnover.

C)

Return on equity.

D)

Return on assets.

Part 3)
2004 NOPAT is closest to:

A)

455.

B)

1,238.

C)

750.

D)

700.

Part 4)
Erica Company’s 2004 weighted average cost of capital is closest to:

A)

11.34%.

B)

11.51%.

C)

11.89%.

D)

10.24%.

Part 5)

  • EBIT  = $615 million.

  • Net debt = $600 million.

  • Equity = $750 million.

  • Marginal tax rate = 35%.

  • Operating profit margin = 15%.

  • Weighted average cost of capital = 10%.

  • Required rate of return on equity = 12%.

Assuming the above facts, EVA is closest to:

A)

$275 million.

B)

$265 million.

C)

$250 million.

D)

$238 million.

Part 6)
Which of the following statements about the EVA calculated in the previous question is FALSE?

A)

A firm will generate a positive EVA if its operating revenues exceed its operating expenses and capital costs.

B)

Even though the EVA figure is positive this does not necessarily mean that management has added value during the last year.

C)

Economic measures of profitability such as EVA are more appropriate for the analyst to use in assessing the firm’s profitability than accounting measures like ROE.

D)

Firms that invest in negative NPV projects destroy value and generate negative EVA.

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2#
发表于 2007-5-13 15:58 | 只看该作者

Question

7 - #38715

Part 1)
Your answer: B was correct!

The debt/capital ratio changed from 26.4% (4,962/(13,852+4,962)) to 19.6% (4,821/(19,715+4,821)), down 26%.
ROE changed from 3.0% (417/13,852) to 2.5% (490/19,715), down 17%.
ROA changed from 1.7% (417/24201) to 1.6% (490/30,362), down 6%.
Financial leverage changed from 1.747 (24,201/13,852) to 1.540 (30,362/19,715), down 12%.

Part 2)
Your answer: B was correct!

If gross profits rise and operating profits are flat, the likely reasons are either higher sales or lower COGS with the most likely being an increase in sales greater than an increase in COGS. Higher sales would most likely lead to an increase in inventory turnover due to a related increase in COGS or lower average inventory on hand. Flat profits and minimal investment in new assets are likely to limit the growth of ROE and ROA. Without increases in the asset base or decreases in equity, financial leverage is not likely to rise.

Part 3)
Your answer: B was incorrect. The correct answer was A) 455.

NOPAT = (sales - COGS - SGA - dep) x (1 - t)
= (9,889 - 4,691 - 3,960 - 479) x (1 - 0.40)
= 455

Part 4)
Your answer: B was incorrect. The correct answer was A) 11.34%.

Capital = debt + equity = 4,821 + 19,715 = 24,536
Equity weight = 19.715 / 24,536 = 80.4%
Debt weight = 1 – equity weight = 19.6%
kequity = rf + (rm – rf) β = 0.03 + 0.08 x 1.26 = 13.08%
The pretax required return on debt is 7%
Tax rate = 40%

WACC = (80.4% * 13.08%) + (19.6% * 7% * [1 - 40%])
= 10.51% + 0.83% = 11.34%

Part 5)
Your answer: B was correct!

NOPAT (Net operating profit after taxes) = $615 million x 0.65  = $400 million
EVA = NOPAT – (WACC * capital)
= $400 million – (10% * [$750 million + $600 million]) = $265 million

A key to success here is determining the proper figure for capital. Net debt of $600 million combined with $750 million in equity represents total capital of $1,350 million.

Part 6)
Your answer: B was correct!

A positive EVA does mean the firm was successful at creating economic profits and did add value by investing in positive NPV projects thereby developing a sustainable competitive advantage.

2011年12月CFA Level I 远程教育培训正在热招...详情请登录：http://eclass.cfaspace.com/

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