1.The Erica Company has the following financial information:

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

A)   Debt/capital ratio.

B)   Return on equity.

C)   Return on assets.

D)   Financial leverage.

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)   Inventory turnover.

B)   Financial leverage.

C)   Return on equity.

D)   Return on assets.

3.2004 NOPAT is closest to:

A)   455.

B)   1,238.

C)   750.

D)   700.

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

A)   11.51%.

B)   11.89%.

C)   10.24%.

D)   11.34%.

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)   $250 million.

C)   $238 million.

D)   $265 million.

答案和详解如下：

1.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.

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

A)   Debt/capital ratio.

B)   Return on equity.

C)   Return on assets.

D)   Financial leverage.

The correct answer was A)

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%.

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)   Inventory turnover.

B)   Financial leverage.

C)   Return on equity.

D)   Return on assets.

The correct answer was A)

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.

3.2004 NOPAT is closest to:

A)   455.

B)   1,238.

C)   750.

D)   700.

The correct answer was A)

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

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

A)   11.51%.

B)   11.89%.

C)   10.24%.

D)   11.34%.

The correct answer was D)

Capital = debt + equity = 4,821 + 19,715 = 24,536
Equity weight = 19.715 / 24,536 = 80.4%
Debt weight = 1 – equity weight = 19.6%
k_equity = r_f + (r_m – r_f) 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%

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)   $250 million.

C)   $238 million.

D)   $265 million.

The correct answer was D)

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.