Q18. Robin Alberts, CFA, is the head of research for Worth Brothers, a large investment company based in New York. Next week, a group of analysts who have just completed the Worth Brothers’ management training program will begin rotating throughout the various departments and trading desks at the firm. The trainees will be split into small groups, and each group will spend four weeks in each area to learn the basic operations of each department through “hands on” experience. Also, in that time period, each department head is expected to fully evaluate each candidate in order to determine their future placement within the firm.
Alberts decides that she should begin every rotation in the research department by giving each candidate a brief review exam to test their knowledge of the general principles of credit analysis. She asks each candidate to analyze the following three scenarios and to answer two questions on each scenario.
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Scenario One | ||||
|
|
Firm A |
Firm B |
Firm C |
Firm D |
|
Payout Ratio |
75% |
-- |
-- |
-- |
|
Required Rate of Return |
12% |
12% |
12% |
12% |
|
Return on Equity (ROE) |
20% |
15% |
30% |
14% |
|
Price-to-book Value (PBV) Ratio |
-- |
3.00 |
0.70 |
3.50 |
|
Scenario Two | |
|
Risk-Free Rate |
5% |
|
Expected Return on the Market |
12% |
|
Beta |
1.5 |
|
Tax Rate |
40% |
|
Cost of Debt |
10% |
|
Proportion of the Firm Financed with Debt |
20% |
|
Proportion of the Firm Financed with Equity |
80% |
|
Scenario Three | ||||
|
Cash |
38 |
|
Current Liabilities |
52 |
|
Accounts Receivable |
120 |
|
Long-term Bonds |
123 |
|
Inventory |
57 |
|
Common Stock |
75 |
|
Property, Plant & Equip. |
218 |
|
Retained Earnings |
183 |
|
Total Assets |
433 |
|
Total Liabilities & Equity |
433 |
|
|
2001 |
2002 |
2003 |
|
Operating Profit (EBIT) |
42 |
38 |
43 |
|
Interest Expense |
16 |
17 |
20 |
|
Relevant Industry Ratios | |||
|
Long-term Debt-to-equity Ratio: 0.52 | |||
|
Current Ratio: 3.20 | |||
|
Interest Coverage Ratio: 2.10 | |||
Using the information in scenario one which of the following items would increase firm A's PBV?
A) Decrease ROE.
B) Increase r.
C) A larger spread between ROE and the required rate of return (r).
Q19. Using the information from scenario one which of the following items would decrease Firm A's PBV?
A) Increase ROE.
B) Increase r.
C) Increase the spread between ROE and r.
Q20. Using the information in scenario two, what is the cost of equity capital of Brown, Inc.?
A) 15.5%.
B) 12.0%.
C) 10.5%.
Q21. Using the information in scenario two, what is the weighted-average cost of capital (WACC) of Brown, Inc.?
A) 13.60%.
B) 9.86%.
C) 14.40%.
谢谢，楼主辛苦了
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