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  Question 5.   You have been hired by GS Investment Bank to work in the merger department. The analysis required for all potential acquisitions includes an examination of the target for any off-balance-sheet assets or liabilities that have to be factored into the valuation. Prepare a checklist for your examination.     Question 6.   A target.
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  Question 3.   Some have argued that the market for original-issue junk bonds developed in the U.S. in the late 1970s as a result of a failure in the rating process. Proponents of this argument suggest that rating agencies rated companies too harshly at the low end of the rating scale, denying.
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  Question 5.   Betty Li, the Financial Director of a company applying for a new loan, argues: “I will never agree to a debt covenant that restricts my ability to pay dividends to my shareholders, because it reduces shareholder wealth.” Do you agree with this argument?     Question 6.   A bank extends three loans to.
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  Problem 4. The Fiat Group in 2008   Decompose Fiat’s return on equity and evaluate the drivers of the company’s performance during the period 2006-2008. What trends can you identify in the company’s performance? What has likely been the effect of the credit crisis on Fiat?     .
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  2.The quotation from Federal Reserve Chairman Ben Bernanke at the beginning of the chapter is from a speech that he presented in Jackson Hole, Wyoming, on August 25, 2006, entitled “Global Economic Integration: What’s New and What’s Not?” The full transcript of the speech is available at http://www/federalreserve.gov/ newsevents/speech/bernanke20060825a.htm. Read.
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Question 1.   Despite many years of research, the evidence on market efficiency described in this chapter appears to be inconclusive. Some argue that this is because researchers have been unable to link company fundamentals to stock prices precisely. Comment.     Question 2.   Geoffrey Henley, a professor of finance, states: "The capital market is efficient..
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  Problem 2. Estimating Adidas’ equity value   1.Check whether all changes in the book value of equity that the analyst predicts can be fully explained through earnings and dividends. Why is this an important property of the analyst’s equity estimates? 2.When using these forecasts to estimate the value of equity, the analyst can.
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Question 1.   Since the year 2000, there has been a noticeable increase in mergers and acquisitions between firms in different countries (termed cross-border acquisitions). What factors could explain this increase? What special issues can arise in executing a cross-border acquisition and in ultimately meeting your objectives for a successful combination?       .
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  Problem 2. Anheuser-Busch InBev S.A.   1.The analyst estimates that AB InBev’s weighted average cost of capital is 9 percent and assumes that the free cash flow to debt and equity grows indefinitely at a rate of 1 percent after 2018. Show that under these assumptions, the equity value per share estimate.
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  Question 6.   How will the terminal values in Table 8.6 change if the sales growth in years 2022 and beyond is 5 percent, and the company keeps forever its abnormal returns at the same level as in fiscal 2018 (keeping all the other assumptions in the table unchanged)?         Question 7.   Calculate the proportion.
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  Question 6.(a.)   What would be the year 6 forecast for earnings per share for each of the two earnings forecasting models?     Question 6.(b.)   Actual earnings per share for Telefonica in 6 were €0.91. Given this information, what would be the year 7 forecast for earnings per share for each model? Why do the.
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  Question 5.   Three months ago, Intergalactic Software Company went public. You are a sophisticated investor who devotes time to fundamental analysis as a way of identifying mispriced stocks. Which of the following characteristics (market capitalization, average number of shares traded per day, bid- ask spread for the stock, whether the underwriter.
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  Question 3.   What is the difference between fundamental and technical analysis? Can you think of any trading strategies that use technical analysis? What are the underlying assumptions made by these strategies?   Question 4.   Investment funds follow many different types of investment strategies. Income funds focus on stocks with high dividend yields, growth funds.
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  Problem 1. ROE Decomposition   1.Calculate Inditex’s net operating profit after taxes, operating working capital, net noncurrent assets, net debt and net assets in 2007 and 2008. (Use the effective tax rate [tax expense/profit before taxes] to calculate NOPAT.) 2.Decompose Inditex’s return on equity in 2007 and 2008 using the traditional approach. 3.Decompose Inditex’s.
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  Question 8.   Which of the following items affect free cash flows to debt and equity holders? Which affect free cash flows to equity alone? Explain why and how.       Question 9.   Starite Company is valued at €20 per share. Analysts expect that it will generate free cash flows to equity of €4 per share.
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  Question 3.   Recalculate the forecasts in Table 8.4 assuming that the ratio of net operating working capital to sales is 15 percent, and the ratio of net non-current operating assets to sales is 65 percent for all the years from fiscal 2012 to fiscal 2021. Keep all the other assumptions unchanged.           .
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  Question 4.   The Munich Beer Company plans to acquire Liverpool Beer Co. for £60 per share, a 50 percent premium over current market price. Jan Höppe, the Financial Director of Munich Beer, argues that this valuation can easily be justified, using a price-earnings analysis. Munich Beer has a priceearnings ratio of.
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  Problem 3. Ratios of three fashion retailers   1.The return on equity (ROE) decomposition shows that the underlying drivers of ROE performance vary across retailers. Which economic or strategic factors may explain these differences in the components of ROE? 2.How did performance trends (during the period 2008 to 2011) differ among the three.
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  Question 9.   Intergalactic Software Company's stock has a market price of €20 per share and a book value of €12 per share. If its cost of equity capital is 15 percent and its book value is expected to grow at 5 percent per year indefinitely, what is the market’s assessment of.
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Question 1.   What are the critical performance dimensions for (a) a retailer and (b) a financial services company that should be considered in credit analysis? What ratios would you suggest looking at for each of these dimensions?   Question 2.   Why would a company pay to have its public debt rated by a major.
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  Question 9.   A banker asserts: “I avoid lending to companies with negative cash from operations because they are too risky.” Is this a sensible lending policy?       Question 10.   A leading retailer finds itself in a financial bind. It doesn’t have sufficient cash flow from operations to finance its growth, and is close to.
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  Question 8.   Joe Klein is an analyst for an investment banking firm that offers both underwriting and brokerage services. Joe sends you a highly favorable report on a stock that his firm recently helped go public and for which it currently makes the market. What are the potential advantages and disadvantages.
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  Problem 2. Ratio analysis and acquisitions   1.Summarize the main factors behind the decrease in TomTom’s ROE in 2007 and the increase in the company’s ROE in 2008. 2.What effect did the acquisition of a 29.9 stake in Tele Atlas have on the components of TomTom’s ROE in 2007? 3.What effect did the acquisition.
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Question 1.   GlaxoSmithKline is one of the largest pharmaceutical firms in the world, and over an extended period of time in the recent past, it consistently earned higher ROEs than the pharmaceutical industry as a whole. As a pharmaceutical analyst, what factors would you consider to be important in making projections.
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  Question 8.   Under the competitive equilibrium assumption the terminal value in the discounted cash flow model is the present value of the end-of-year book value of equity in the terminal year. Explain.     Question 9.   Under the competitive equilibrium assumption the terminal value in the discounted abnormal earnings growth model is the present value.
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  3.Suppose that each worker in the Foreign country can produce two cars or three TVs. Assume that Foreign also has four workers. a.Graph the production possibilities frontier for the Foreign country. b.What is the no-trade relative price of cars in Foreign? c.Using the information provided in Problem 2 regarding Home, in which good.
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  Question 7.   Cambridge Construction Plc follows the percentage-of-completion method for reporting long-term contract revenues. The percentage of completion is based on the cost of materials shipped to the project site as a percentage of total expected material costs. Cambridge’s major debt agreement includes restrictions on net worth, interest coverage, and minimum.
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  Question 7.   A leading oil exploration company decides to acquire an electronics company at a 50 percent premium. The acquirer argues that this move creates value for its own stockholders because it can use its excess cash flows from the oil business to help finance growth in the new electronics segment..
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  Question 2.   Private equity firms have become an important player in the acquisition market. These private investment groups offer to buy a target firm, often with the cooperation of management, and then take the firm private. Private equity buyers tend to finance a significant portion of the acquisition with debt. a.What types.
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  Question 4.   Given the information in Question 3, what will be Manufactured Earnings' stock price if the market revises its expectations of long-term average ROE to 20 percent?     Question 5.   Analysts reassess Manufactured Earnings’ future performance as follows: growth in book value increases to 12 percent per year, but the ROE of the.
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  Question 4.   Calculate H&M’s cash payouts to its shareholders in the years 2012–2021 that are implicitly assumed in the projections in Table 8.3.       Question 5.   How will the abnormal earnings calculations in Table 8.4 change if the cost of equity assumption is changed to 10 percent?         .
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Question 1.   A spreadsheet containing Hennes & Mauritz’s actual and forecasted financial statements as well as the valuation described in this chapter is available on the companion website of this book. How will the forecasts in Table 8.3 for H&M change if the assumed growth rate in sales from 2012 to.
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  Problem 1. Estimating Hugo Boss’ equity value   1.Calculate free cash flows to equity, abnormal earnings, and abnormal earnings growth for the years 2009 – 2011. 2.Assume that in 2012 Hugo Boss AG liquidates all its assets at their book values, uses the proceeds to pay off debt and pays out the remainder.
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  Question 12.   Nancy Smith says she is uncomfortable making the assumption that H&M’s dividend payout will vary from year to year. If she makes a constant dividend payout assumption, what changes does she have to make in her other valuation assumptions to make them internally consistent with each other?     Problem 1. Hugo.
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  Question 2.   Explain why terminal values in accounting-based valuation are significantly less than those for DCF valuation.     Question 3.   Manufactured Earnings is a “darling” of European analysts. Its current market price is €15 per share, and its book value is €5 per share. Analysts forecast that the firm’s book value will grow by.
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  Problem 1. Predicting Tesco’s 2009/2010 earnings   1.Predict Tesco’s 2009/2010 sales using the information about the company’s store space and revenues (per geographical segment). 2.Predict the 2009/2010 book values of Tesco’s non-current assets and working capital using the information about the company’s investment plans. Make simplifying assumptions where necessary. 3.During fiscal year 2008/2009, at.
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