Question
Rafael, your newly appointed boss, has tasked you with evaluating the following financial data for Allied Biscuit Co. to determine how Allied Biscuits value has
Rafael, your newly appointed boss, has tasked you with evaluating the following financial data for Allied Biscuit Co. to determine how Allied Biscuits value has changed over the past year. The investment firm for which you work will make a positive (or buy) recommendation to its investing clients if Allied Biscuits value has increased over the past year, a neutral (or hold) recommendation if the value has remained constant, or a negative (or sell) recommendation if the value has decreased. He has recommended that you use several metrics to ascertain how the firms value has changed, and he has provided you with the following income statement and balance sheet.
To facilitate your analysis, complete the following table, and use the results to answer the related questions. (Note: Round all percentage change answers to two decimal places. If a dollar value is below $100, round your answer to two decimal places. If your answer is negative use a minus (-) sign.)
Points: Using the change in Allied Biscuits EVA as the decision criterion, which type of investment recommendation should you make to your clients? A buy recommendation A hold recommendation A sell recommendation Points: Which of the following statements are correct? Check all that apply. For any given year, one way to compute Allied Biscuits EVA is as the difference between its NOPAT and the product of its operating capital and its weighted average cost of capital. An increase in the number of common shares outstanding must increase the market value of the firms equity. Other things remaining constant, Allied Biscuits EVA will increase when its ROIC exceeds its WACC. Allied Biscuits net income is growing at a rate greater than its sales. This could imply that either its revenues are growing more quickly than its expenses or that management is being effective in managing its costs while achieving the reported growth in sales. Other things remaining constant, either event should increase the value of the firm. Allied Biscuits NCF is calculated by adding its annual interest expense to the corresponding years net income. |
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