Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

Could you please help with the following finance questions and show any calculations so I can better understand the formulas? Thank you! QUESTION 1 You

Could you please help with the following finance questions and show any calculations so I can better understand the formulas? Thank you!

image text in transcribed QUESTION 1 You are scanning a list of stocks in the specialty retail sector for bargains. The PE ratios, expected growth rates in earnings, risk levels and payout ratios (including both dividends and stock buybacks) are listed below. Specialty Retail Stocks Firm Current PE Exp. Growth Beta Payout Gap 45 30% High 10% Limited 15 10% Low 40% Abercrombie 45 10% High 10% Ann Taylor 45 10% Low 10% Talbots 15 30% Low 40% Gymboree 15 30% High 40% Question 1: Which of these firms is most likely to be undervalued? (Choose only one firm.) A. Gap a . B. Limited b . C. Abercrombie c . D. Ann Taylor d . E. Talbots e . F. Gymboree f. QUESTION 2 (Refer to Question 1 for background information.)Which of these firms is most likely to be overvalued? (Choose only one firm.) A. Gap a . B. Limited b . C. Abercrombie c . D. Ann Taylor d . E. Talbots e . F. Gymboree f. QUESTION 3 One of the principles of using multiples correctly is that one cannot mixmatch the numerator with denominator. Both should correspond to the same group of claimholders. Which multiple below is a CORRECT example of following this principle? A. Market value of equity/free cash flow to the firm a . B. Enterprise valueet income b . C. Market value of the firm/free cash flow to the equity c . holders D. Market value of equity/book value of equity d . QUESTION 4 Questions 4-7 are based on information below. Some of the questions are sequential, meaning that one question's answer will be the next question's input number. If you get the previous question wrong, it could trigger a chain of wrong answers. I would like to credit you back if you set up the calculation right, and if the wrong answer is purely due to the wrong input. In order for me to do this, please upload a file at the end of the exam to show how you got the answers. It could be an Excel spreadsheet, Word file or any file as long as I can clearly see the calculation. This is purely optional. Jorge Zaldys, CFA, is researching the relative valuation of two companies in the aerospace/defense industry, NCI Heavy Industries (NCI) and Relay Group International (RGI). He has gathered relevant information on the companies in the following table. Relative Valuation Information RGI NCI EBITDA 100 100 Interest Expense 0 20 Earnings Before Tax 100 80 Tax (40%) 40 32 Net Income 60 48 Cash and Shortterm Investments 40 20 MV of Debt 0 400 BV of Debt 0 350 Price per Share 10 20 Shares Outstanding 100 30 Question 4. Calculate RGI and NCI's Enterprise Value. A. 1,000 / 1,000 a . B. 1,000 / 600 b . C. 960 / 1,000 c . D. 960 / 980 d . QUESTION 5 (Refer to Question 4 for background information.) Calculate RGI and NCI's earnings per share. A. B. C. D. 60, 48 0.6, 1.6 1, 33.33 10, 3.33 QUESTION 6 (Refer to Question 4 for background information.) Calculate RGI's EV/EBITDA ratio and P/E ratio. A. 10, 12.5 a . B. 9.6, 16.67 C. 10, 16.67 D. 9.6, 12.5 b . c . d . QUESTION 7 (Refer to Question 4 for background information.) Calculate NCI's EV/EBITDA ratio and P/E ratio. A. 10, 12.5 a . B. 9.8, 16.67 b . C. 10, 16.67 c . D. 9.8, 12.5 d . QUESTION 8 (Refer to Question 4 for background information.) Since RGI's P/E ratio is significantly higher than NCI, highly likely RGI is overvalued.? A. True B. False

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access with AI-Powered Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Elements Of Chemical Reaction Engineering

Authors: H. Fogler

6th Edition

013548622X, 978-0135486221

Students also viewed these Finance questions