Reference no: EM13847988

Question 1: (Financial Statement Analysis)

Consider the following sets of financial statements and answer the questions that follow:

Financial Statements, Tootsie Roll (in $000s)

BALANCE SHEET, as of year-end	2014	INCOME STATEMENT	2014
ASSETS		Total revenue	$543,383
Cash and marketable securities	$121,855	Cost of goods sold	351,897
Accounts receivable	45,337	Gross profit	$191,486
Inventory	61,856	Admin and selling ex p	$119,133
Prepaid expenses	5,581	Other operating income(exp)	0
Deferred taxes	5,482	Total operating ex p	$119.133
Total Current assets	$240,111	EBIT	$72,353
Plant & equipment, gross	$476,535	Interest expense	21
Accumulated depreciation	(279,619)	Other income(exp)	12,151
Net fixed assets	$196,916	Before4ax earnings	$84,483
Intangible and other assets	451,382	Taxes	23,634
Total assets	$888,409	Net income	$60,849
LIABILITIES AND EQUITIES
Accounts payable	$9,153	EPS (60,380,000 shares)	$1.01
Dividends payable	4,742
Accruals	45,580	Average stock price, 2014	$30.65
Other current liabilities	646
Total Current liabilities	$60,121
Deferred taxes	$54,939
Other liabilities	93,044
Total liabilities	$208,104
Common stock (60,380,000 shares)	$41,157
Capital in excess of par	572,669
Retained earnings	73,109
Treasury stock and other	($6,630)
Total equity	$680,305
Total liabilities and Equity	$888,409

Financial Statements, Hershey's (in $000s)

BALANCE SHEET, as of year-end	2014	INCOME STATEMENT	2014
ASSETS		Total revenue	$543,383
Cash and marketable securities	$121,855	Cost of goods sold	351,897
Accounts receivable	45,337	Gross profit	$191,486
Inventory	61,856	Admin and selling ex p	$119,133
Prepaid expenses	5,581	Other operating income(exp)	0
Deferred taxes	5,482	Total operating ex p	$119.133
Total Current assets	$240,111	EBIT	$72,353
Plant & equipment, gross	$476,535	Interest expense	21
Accumulated depreciation	(279,619)	Other income(exp)	12,151
Net fixed assets	$196,916	Before4ax earnings	$84,483
Intangible and other assets	451,382	Taxes	23,634
Total assets	$888,409	Net income	$60,849
LIABILITIES AND EQUITIES
Accounts payable	$9,153	EPS (60,380,000 shares)	$1.01
Dividends payable	4,742
Accruals	45,580	Average stock price, 2014	$30.65
Other current liabilities	646
Total Current liabilities	$60,121
Deferred taxes	$54,939
Other liabilities	93,044
Total liabilities	$208,104
Common stock (60,380,000 shares)	$41,157
Capital in excess of par	572,669
Retained earnings	73,109
Treasury stock and other	($6,630)
Total equity	$680,305
Total liabilities and Equity	$888,409

a. Which firm is the most liquid? Why? (Justify your answer with at least two ratios).

b. Which firm is the most profitable? Why? (Justify your answer with at least two ratios).

c. Construct a Du Pont equation (use the extended, or modified version shown in the Week 1, chapters 2 & 3 lesson notes) for each firm and comment on the sources of each firm's ROE as revealed by the equation.

Question 2:  (Time Value of Money - Monthly Loan Payments)

Best Buy has a 65" 4K Ultra HD TV on sale for $1,999.99.  If you could borrow that amount from First National Bank of St Louis at 4% for 1 year, what would be your monthly loan payments?

Question 3:  (Time Value of Money - Present Value)

You have figured out that you will need $800,000 to finance your child's college education when she turns 18, which will be 16 years from now, so you decide to invest in zero-coupon bonds, which will mature in 16 years and will pay off $800,000 at maturity.  How much would you have to invest in zero-coupon bonds today to reach your goal, assuming the going rate on such bonds is currently 3.5% per year?

Question 4:  (Risk & Return)

You hold a portfolio of stocks consisting of the following:

Stock                     Beta       Current Value

Caterpillar                    0.6           $20,000

CitiCorp                       0.8           $21,000

Wendy's                       1.0           $22,000

Boeing...                      1.2           $27,000

                                    Total:   $90,000

a.  What is the beta of the portfolio?

b.  You have decided to sell Boeing for $27,000 and to use the proceeds to buy $27,000 of Nike stock with a beta of 1.4.  After the transaction is complete, what will be the new beta of the portfolio?  (Disregard any commissions on the buy and sell transactions.)

Question 5:  (Risk & Return)

a. Define the Capital Asset Pricing Model.

b. Explain what a stock's "beta" is.

c. If the risk-free rate is 1% and the expected rate of return on the stock market is 9%, what is the required rate of return per the CAPM for a stock that has a beta of 1.3?

Question 6:  (Bond valuation)

a. Curley's Company's bonds have 10 years remaining to maturity. Interest is paid annually, the bonds have a $1,000 par value, and the coupon interest rate is 4%. The bonds have a yield to maturity (YTM) of 5%. Given these conditions, what should be the current price of these bonds?

b. Larry's Company's bonds have 8 years remaining to maturity. Interest is paid annually, the bonds have a $1,000 par value, and the coupon interest rate is 4%. The bonds have a current market price of $890. Given these conditions, what should be the yield to maturity (YTM) of these bonds?

Question 7:  (Stock Valuation)

a.  Define the Efficient Markets Hypothesis.

b.  Financial theorists generally define three forms of market efficiency: the weak-form, the semi-strong-form, and the strong-form. Explain these three forms.