Question
Company Analysis: Dan no longer works for Alphabet, but he has a relatively large amount of his personal wealth tied up in both company stock
Company Analysis:
Dan no longer works for Alphabet, but he has a relatively large amount of his personal wealth tied up in both company stock and debt. Consequently, he would like an objective review of the company today and its future prospects. He would also like an opinion on the stocks equity and bond valuations. Dan has sufficient alternative assets and doesnt need to sell his ABCD stock or bonds, but he is becoming concerned about increasing inflation and is reviewing all of his holdings.
Economic Environment:
The risk-free rate is at 4.2%. The economy is just coming out of a recession, but Alphabet is in an early cycle industry and is already recovering (after a downturn in 2007). Alphabets earnings are expected to grow 12%. Inflation is running at 3%, but both Dan and economists are concerned that inflation could rise to 6% within five years.
Alphabet Corp - Income Statement
|
Alphabet Corp Balance Sheet
|
LT Debt 3 MM at 11% maturing 2015, 5 MM at 8% maturing 2020.
QUESTION 6
Which of the following contributed to Alphabets high ROE in 2010?
(1) Increased Financial leverage
(2) Increased turnover
(3) Increased sales margin
(4) Decreased tax rate
1 and 2 | ||
2 and 3 | ||
All of the answer choices. | ||
1, 2 and 3 |
QUESTION 7
Which of the following would not be found in the financial statement footnotes?
(1) Alphabet had sold and leased back its production facility
(2) The company had changed its recognition of revenue to delivery date rather than when items are sold.
(3) Depreciation expenses fell when Alphabet changed its depreciation method
(4) $200 MM in long term debt is due to mature in Nov. of 2012.
2 and 4 | ||
4 only | ||
They would all be included in the footnotes | ||
3 and 4 |
QUESTION 8
What has been Alphabets approximate dividend payout ratio over the past two years?
60% | ||
50% | ||
40% | ||
45% |
QUESTION 9
What has been Alphabets Earnings Per Share over the past two years?
$7.71, $6.27 | ||
$1.30, $0.80 | ||
$1.22, $1.02 | ||
$.77, $.63 |
QUESTION 10
Through increased sales and new opportunities, Alphabet expects its earnings to continue to grow at a 20% annual rate over the next 7 years. To maximize shareholder wealth, what should be Alphabets dividend policy?
Grow dividends at the same 20% rate | ||
Decrease its payout ratio | ||
Increase the payout ratio | ||
No change in the payout ratio |
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