Which of the following statements is correct concerning the relationship between the current share price and long-term value of a company? Select one: a. The current share price may not represent the value of the company due to limited information available to the market. b. Company managers' primary goal is to maximize the current share price for their shareholders. c. Company managers' primary goal is to maximize the profit of the company. d. The current share price is determined by the company's current financial performance while the long-term value is related more to the company's performance in the future. * In which of the following situations shareholder value is created as a result of the changes? Select one: a. The management of Company XYZ decides to boost the reported profit of the company by managing more aggressively of its accrual accounts. Assume the operation of the company is not affected by the new accounting treatment. ob. The management of Company XYZ decides to change how the profit and loss of its subsidiaries are recognized on its consolidated financial statement. c. The Australian Accounting Standard Board has recently issued a guideline that requires companies to record the implicit cost of employee options as an expense on the Profit and Loss Statement, which was only disclosed in the notes of financial reports as a provision. d. The Australian Taxation Office (ATO) announces a corporate income tax reduction for all Australian companies. e. None of the changes above create shareholder value. X Which of the following statement is correct about return on invested capital (ROIC)? Select one: a. When making investment decisions, investors should prefer companies with higher ROIC b. In performance analysis of ROIC, ROIC including goodwill is a better measure of underlying operating performance of the company, comparing performance against peers and analyzing trends. OC. In performance analysis of ROIC, ROIC including goodwill is a better measure of aggregate value creation for the company's shareholders. d. When making investment decisions, investors should prefer companies with higher sustainable ROIC X Braam Fire Prevention Corp. has a revenue of $175, operating margin of 8.70%, flat tax rate of 30%, and ROIC of 18.65 percent. What is its firm's invested capital? Select one: a. 24.49 b. 15.23 c. 81.64 d. 4.57 X e. 57.14 Listed below are five methods for forecasting capital spending (capex). Which will most probably generate poor forecasts and a misleading valuation? Select one: a. Forecast stock of fixed capital as percentage of revenue, and back out capex required to reach the targeted quantity of fixed capital after allowing for depreciation, etc. * b. Estimate maintenance capex directly, i.e. cost of replacing existing fixed capital c. Use depreciation as a proxy for capex d. Forecast capex as a percentage of revenue e. Forecast capital spending directly, e.g. projecting explicit amounts ABC Company has a forecast NOPLAT of $107 in year 2021. Assuming a cost of capital of 9.70%, a growth rate of 4%, and a return on new invested capital of 10%, what is the continuing value of the company at the end of year 2021? Select one: a. 1225 X b. 1301 c. 1149 d. 1105 e. 1171 Standing at the end of Year O, ABC Company's free cash flow from operations is forecasted to be $65 in Year 1 and $85 in Year 2. The continuing value for Year 3 onwards at the end of Year 2 is forecasted to be $1100. Cost of capital is 9.7%. What is the enterprise value of operations? Select one: a. 1105 b. 1161 X c. 1154 d. 1194 e. 1044
