Financial Management Midterm Examination essay writing services

Midterm Examination

Chapter 1

Questions:

• If you bought a share of stock, what would you expect to receive, when would you expect to receive it, and would you be certain your expectations would be met?
• If most investors expect the same cash flows from Companies A and B but are more confident that A’s cash flows will be closer to their expected value, which company should have the higher stock price? Explain?
• What is a firm’s intrinsic value? its current stock price? Is the stock’s “true long-run value” more closely related to its intrinsic value or to its current price?

1-8      What are the four forms of business organization? What are the advantages and disadvantages of cash?

1-10    What are some actions that stockholders can take to ensure that management’s and stockholder’s interests are aligned?

1-13    Edmund Enterprises recently made a large investment to upgrade its technology. While these improvements won’t have much effect on performance in the short run , they are expected to reduce future costs significantly. What effect will this investment have on Edmund Enterprises’ earnings per share this year? What effect might this investment have on the company’s intrinsic value and stock price?

 

 

Chapter 2

Questions:

2-1      How does a cost-efficient capital market help reduce the prices of goods and services?

2-2      Describe the different ways in which capital can be transferred from suppliers of capital to those who are demanding capital.

2-5      What would happen to the U.S. standard of living if people lost faith in the safety of the financial institutions? Explain.

2-6      What types of changes have financial markets experienced during the last two decades? Have they been perceived as positive or negative changes? Explain.

2-8      Identify and briefly compare the two leading stock exchanges in the United States today.

2-9      Describe the three different forms of market efficiency.

 

Chapter 3

Questions:

3-1      What four financial statements are contained in most annual reports?

3-3      If a “typical” firm reports $20 million of retained earnings on its balance sheet, could its directors declare $20 million cash dividend without having any qualms about what they were doing? Explain your answer.

3-5      Financial statements are based on generally accepted accounting principles (GAAP) and are audited by CPA firms. Therefore, do investors need to worry about the validity of those statements? Explain your answer.

3-6      What is free cash flow? If you were an investor, why might you be more interested in free cash flow than net income?

Problems:

3-2      INCOME STATEMENT  Pearson Brothers recently reported an EBITDA of $7.5 million and net income of $1.8 million. It had $2.0 million of interest expense, and its corporate tax rate was 40%. What was its charge for depreciation and amortization?

3-3      STATEMENT OF STOCKHOLDERS’ EQUITY  In its most recent financial statements, Newhouse Inc. reported $50 million of net income and $810 million of retained earnings. The previous retained earnings were $780 million. How much in dividends were paid to shareholders during the year? Assume that all dividends declared were actually paid.

 

Chapter 4

Questions:

4-1      Financial ratio analysis is conducted by three main groups analysts: credit analysts, stock analysts, and managers. What is the primary emphasis of each group, and how would that emphasis affect the ratios they focus on?

4-4      Profit margins and turnover ratios vary from one industry to another. What differences would you expect to find between the turnover ratios, profit margins, and DuPont equations for a grocery chain and a steel company?

4-5      How does inflation distort ratio analysis comparisons for one company over time (trend analysis) and for different companies that are being compared? Are only balance sheet items or both balance sheet and income statement items affected?

4-7      Give your examples that illustrate how (a) seasonal factors and (b) different growth rates might distort a comparative ratio analysis. How might these problems be alleviated?

Problems:

4-5      PRICE/EARNINGS RATIO  A company has an EPS of $2.00, a cash flow per share of $3.00, and a price / cash flow ratio of 8.0X. What is its P/E ratio?

4-6      DuPONT AND ROE  A firm has a profit margin of 2% and an equity multiplier of 2.0. Its sales are $100 million, and it has total assets of $50 million. What is its ROE?

 

 

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