28. Using the information below and any combination of the Dupont ROE Formula we

Question

28. Using the information below and any combination of the Dupont ROE Formula we discussed in lecture to solve for Assets:

Net income      =         1.5M

Equity              =         12.0M

Sales               =         15.0M

ROA                 =         15.0%             (Note: This is not Operating ROA … NI is in the Numerator)

ROE                 =         12.5%

A.         8.5M

B.         10.0M

C.         12.0M

D.         15.0M

E.         None of the Above

29.       Using the information below and any combination of the Dupont ROE Formula we discussed in lecture to determine which of the following statement are TRUE:

I. The company’s ROE has improved in year 2 partially due to improved margins

II. The company’s ROE has improved in year 2 partially due the company’s ability to generate greater

revenue from fewer total assets

III. The company’s ROE has improved in year 2 partially due to decreased leverage

A.         I

B.         I&II

C.         I, II, & III

D.         I & III

E.         None of the Above

For Questions 30-32, use the following information as well as the Free Cash Flow Formula we discussed in lecture and used on Spreadsheet Problem Set #2. HINT: Do not forget about the Income Statement!

Operating Income                                           =         100.0M

Long Term Debt Outstanding                           =         100.0M

Initial Interest Rate on Long Term Debt            =         3.0%

Effective Tax Rate                                           =         50.0%            

YOY Change in Fixed Capital                                    =         0.0M              

YOY Change in Working Capital                   =         0.0M              

Depreciation                                                   =         10.0M            

New Debt Issued                                             =         0.0M              

30.       What are the Cash Flows from Operations?

A.         20.0M

B.         25.0M

C.         35.0M

D.         45.0M

E.         50.0M

31.       For this question only, assume that the Interest Rate on Long Term Debt decreases from 3.0% to 2.0%. What is the effect on CFO, FCFF, & FCFE:

A.         CFO:    stays the same             FCFF:    stays the same             FCFE: increases

B.         CFO:    stays the same             FCFF:    increases                     FCFE: increases

C.         CFO:    decreases                    FCFF:    stays the same             FCFE: decreases

D.         CFO:    increases                     FCFF:    increases                     FCFE: increases

E.         None of the Above

32.       For this question only, assume that in order to grow the company’s sales in two years, the company will have to build a new factory this year for 20M paid in cash; on a related note, there is another 2M in depreciation expensed this year because of this investment. What is the effect on this year’s Net Income, CFO, and FCFF?

A.         NI:       stays the same             CFO:    increases                     FCFF:    decreases       

B.         NI:       stays the same             CFO     decreases                    FCFF:    decreases

C.         NI:       decreases                    CFO     increases                     FCFF:    decreases

D.         NI:       decreases                    CFO     decreases                    FCFF:    decreases

E.         None of the Above

For Questions 33-34, use the following table below:

Stock Fund A

Stock Fund B

Stock Fund C

BOY Assets Under Management(AUM)*

10,000

20,000

40,000

Shares Outstanding

250

1,000

500

Total Annual Management Fees/Expenses*

3.0%

1.0%

1.0%

Return on AUM before Fees/Expenses

11.0%

8.5%

7.5%

Portfolio Turnover Rate*

25%

50%

50%

Stocks in Portfolio

250

250

500

* Assume All of the Expenses Are Incurred at the Beginning of the Year (BOY) but not reflected in BOY AUM

Broker commissions on stock purchases and sales are not included in “Total Annual Management Fees/Expenses”

33.       At the EOY, which Fund has the highest NAV?

A.         Fund A

B.         Fund B

C.         Fund C

D.         Fund A & B have the same NAV          

E.         Fund B & C have the same NAV

34.       Assume that all of the Portfolio Managers (PMs) are passive investors that have the same benchmark. Which of the following could help to explain the different Returns on AUM before Fees/Expenses?

A.         Fund A was taking its’ sweet time rebalancing their Fund’s Portfolio; they happened to be sitting on cash when the market made a 10% correction

B.         Higher Turnover in Fund B & C increased Broker commissions

C.         More stocks in Fund C increased Broker commissions when it was time to rebalance Fund C’s Portfolio

D.         Both B & C      

E.         All of the Above

Stock Fund A

Stock Fund B

Stock Fund C

BOY Assets Under Management(AUM)*

10,000

20,000

40,000

Shares Outstanding

250

1,000

500

Total Annual Management Fees/Expenses*

3.0%

1.0%

1.0%

Return on AUM before Fees/Expenses

11.0%

8.5%

7.5%

Portfolio Turnover Rate*

25%

50%

50%

Stocks in Portfolio

250

250

500

Explanation / Answer

28.Total Assets= Net income/ROA

=1.5/0.15

=10

AnswerB

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