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Question: multiple chopice no working out needed q12 selected financial information...

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multiple chopice, no working out needed 

 

Q1.2 Selected financial information for Bruce Corporation is as follows. NOA turnover is 3. NOPAT margin is 7%. Leverage ratio (average NFO to average common equity) is 1.667 and the spread is 8.4%. Based on an analysis of the components of ROCE what is the leverage advantage component of ROCE that is accruing to ordinary shareholders

a.     21%

b.     35%

c.     8.4%

d.     14%

e.     None of the above is correct

Answer:                              

 

Q1.4 FAT Ltd announced $1 million of positive unexpected earnings news, due to a new customer contract. On the same day, XYZ Ltd announced $1 million of positive unexpected earnings news, due to the implementation of AASB 16 – Leases. Assume no significant economy-wide events affecting share prices occurred on this day. Which firm would be expected to see a greater change in share price on this day?

 

a.     XYZ Ltd

b.     FAT Ltd

c.     Both firms should see the same change in share price

d.     There is insufficient information to know which share price will see a greater change

 

Answer:                               

 

 

Q1.5 VAL Ltd’s ROCE falls from 6% in 2019, to 4% in 2020. Which of the following reason may best explains why this change has occurred?

 

a.     The firm issued new debt, with an interest rate greater than the Return on Net Operating Assets

b.     VAL Ltd initiated a share buyback program in 2020

c.     The firm refinanced existing debt obligations in 2020, meaning the average interest rate it pays has fallen

d.     VAL Ltd invested in financial assets in 2020 which generated an 8% return

 

Answer:                               

 

Q1.6 Which set of parameters are to be used to perform an unlevered residual income valuation?

a.     Net Profit after Tax, Weighted Average Cost of Capital (WACC), and book value of Equity

b.     Net Operating Profit after Tax, Weighted Average Cost of Capital (WACC), and book value of Net Operating Assets

c.     Net Profit after Tax, cost of equity capital, and book value of Equity

d.     Operating Free Cash Flow, Weighted Average Cost of Capital (WACC) and the book value of Net Operating Assets

 

Answer:                               

 

 

Q1.7 Which of the following best  describes equity valuation?

a.     Equity valuation is precise and objective.

b.     In an inefficient market the accuracy of an equity valuation can be measured by how closely the value reflects the current market price.

c.     Equity valuation is subjective and there is no fixed approach to developing valuation inputs.

d.     In practise, all valuation approaches will result in an identical valuation per share.

Answer:                               

 

Q1.8 Selected financial information from Synetx Corporation is as follows. NOA turnover  is 2. NOPAT margin equals 5%. Leverage ratio (average NFO/average common equity) is 1.786, and the spread is 4.4%. The return on common equity of Synetx is:

a.     16.78%

  1. 14.40%
  2. 10.00%
  3. 17.86%
  4. None of the above is correct

answer: 

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