Fin 3321 – Spring 2015
Exam 2
Moore
Exam 2 – Fin 3321 – Statement Analysis Spring 2015 (Moore)
Section Time:
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Printed Name:
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Ethical conduct is an important component of any profession. The Texas Tech University Code of
Student Conduct is in force during this exam. Students providing or accepting unauthorized
assistance will be assigned a score of zero (0) for this piece of assessment. Using unauthorized
materials during the exam will result in the same penalty. Ours’ should be a self-monitoring
profession. It is the obligation of all students to report violations of the honor code in this course.
By signing below, you are acknowledging that you have read the above statement and agree to abide
by the stipulated terms.
Student’s Signature:
______________________________
The First 4 Problems must be completed in Class. No extra time will be allowed on these items. The
excel file work and accompanying write-ups are to be done after class are of a take-home nature. Do
not violate the trust I have placed in you. Email me the completed excel file as you did with the
previous exam. You will have until 11pm on Sunday, 12 April to submit the excel file work associated
with the take-home part of the exam.
Download the indicated Excel file with information related for Johnson and Johnson Corp, a
medical equipment and integrated Pharmaceutical manufacturer. You will need this file and the
information to answer much of this exam. Clearly show all inputs to be eligible for credit. Numerical
answers must be taken to 2 decimal places (e.g. 25.42) and percentage based answers must be
taken to the tenth of a percent (e.g. 36.4%). Time measures must be denoted by days, turnover
ratios by turns, and pure numbers should have no suffix. All information (on financials) stated
in thousands except share data.
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Fin 3321 – Spring 2015
Exam 2
Moore
Problem 1 (10 Points) (multiple choice at 2.5 points each)
1. Within the context of forecasting, which of the following ratios best links the income statement to
the balance sheet?
a. Net profit margin
b. Current Ratio
c. Return on Equity
d. Asset Turnover
e. Day’s Sales outstanding
2. You have just computed the Beta of a stock to be 1.5 and the estimate the expected market
return next period is 7.3333%. The estimated cost of equity is 16%. What is the estimated long
run market risk premium if we assume a 3.0% risk free rate?
a. 2.00%
b. 3.00%
c. 4.00%
d. 5.00%
e. 6.00%
3. You are trying to value JNJ (financials on the spreadsheet). Today is April 7, 2015. In one week
valuation forecasts will be made. Assume JNJ publishes its 10-K’s no earlier than 6 weeks after
the fiscal year end and 10-Q’s no earlier than 2 weeks after the period end. How many quarters
of activity must you forecast (in one week) when estimating the annual net income that will be
reported on the next published 10-K?
a. 0
b. 1
c. 2
d. 3
e. 4
f. 5
4. Which statistic is used to assess the level of systematic risk associated with the firm when
performing a CAPM regression to estimate Beta?
a. Beta
b. T-Statistic of the intercept
c. T-Statistic of the independent variable
d. Adjusted R-squared
e. Correlation coefficient
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Fin 3321 – Spring 2015
Exam 2
Moore
Problem 2 (10 Points) (Regression Results, CAPM and Potential for
Finding Mis-priced Securities)
Provided below are regression results from estimating Beta for XYZ and ABC companies.
Monthly stock returns and the excess return on the S&P 500 (Rm – Rf) to estimate the
Beta of the stocks.
Use this information to answer the following question:
SUMMARY OUTPUT
XYZ Corp
Regression Statistics
R Square
Adjusted R Square
Standard Error
Observations
Intercept
X Variable 1
SUMMARY OUTPUT
Coefficients Standard Error
0.00
1.61
t Stat
0.10
6.82
P-value
0.92
0.00
Lower 95%
Upper 95%
(0.02)
0.02
1.13
2.08
t Stat
0.74
16.59
P-value
0.46
0.00
Lower 95%
Upper 95%
(0.01)
0.02
1.12
1.36
ABC Corp
Regression Statistics
R Square
Adjusted R Square
Standard Error
Observations
Intercept
X Variable 1
50.2%
49.2%
5.4%
60
70.9%
69.8%
2.8%
60
Coefficients Standard Error
0.01
1.24
Questions are on the next page
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Fin 3321 – Spring 2015
Exam 2
Moore
If your Last Name (surname) begins with A – L then perform the
analysis on ABC corp. Otherwise, perform the analysis on XYZ corp.
1. What is the estimated Beta of the company?
2. Assume a Long-run Market Risk Premium 6.8% and a risk-free rate of
2.75%. What is estimated cost of equity by CAPM and these
assumptions?
3. How much of the firm’s return is explained by systematic risk?
4. How much of the return is explained by non-systematic risk?
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Fin 3321 – Spring 2015
Exam 2
Moore
Problem 3 (10 Points) (Potential for Finding Mis-priced Securities)
Use to previous results for the regressions used to estimate Beta for XYZ and ABC
companies to structure the following persuasive essay.
Provide a short essay (you may continue on the back of the paper) to
describe which of the two firms has the highest likelihood of being mispriced and/or where fundamental analysis my prove to be the most pro
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Fin 3321 – Spring 2015
Exam 2
Moore
Problem 4 (10 Points) (Short Essay) Company Valued:_________
Briefly comment on the Liquidity, Profitability, Operating Efficiency, and Capital Structure risk or
performance for the firm your group has been tasked with valuing this semester.
Be sure to discuss trends of the firm and the benchmark companies. Also, discuss any identified subindustry (benchmark) segmentation you have observed in the analysis.
Liquidity:
Operating Efficiency:
Profitability and Returns:
Capital Structure, Leverage and Debt Service Capacity:
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