FSA 3321 – Fall 2009
Exam 2 – Version 1
Moore
Second Examination – Finance 3321
Fall 2009 (Moore) – Version 1
Section Time:
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by the stipulated terms.
Student’s Signature:
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Use the Financial Statements for Matthews International Corp, a metal Casket and Funeral Supply
maker, at the end of the exam booklet to answer the following 10 questions (no partial credit) –
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.
1. Compute the Days Supply of Inventory for the year ended September 30, 2008.
2. Compute the Quick Asset Ratio for the year ended September 30, 2007.
3. Compute the Working Capital Turnover for the year ended September 30, 2008.
4. Compute the Debt Service Margin for the year ended September 30, 2007.
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FSA 3321 – Fall 2009
Exam 2 – Version 1
Moore
5. Compute the Times Interest Earned for the year ended September 30, 2008.
6. Compute the Asset Turnover for the year ended September 30, 2007.
7. Compute the Net Profit Margin for the year ended September 30, 2008.
8. Compute the Earnings Retention Rate for the year ended September 30, 2007.
9. Compute the Sustainable Growth Rate for the year ended March 31, 2008.
10. Compute the Cash to Cash Cycle for the year ended September 30, 2007.
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FSA 3321 – Fall 2009
Exam 2 – Version 1
Moore
11. 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
Use the following information (assumptions) to provide forecasts for Matthews (MATW) in 12-15.
Assume an asset turnover ratio of 1.05 in 2008 that will grow by 0.1 per year from 2009-2013.
Sales are forecast to decline by 5% in 2009, grow by 4.0% in 2010, 5% in 2011, 6% in 2012, 7%
in 2013 and then leveling at 8% in 2014. Further, assume the forecast current ratio in 2009 is 1.9
and that it will increase by equal amounts over the following 4 years to reach a target level of 2.3.
The 2009 cost of goods sold is forecast at 63% of sales and is expected to remain there
indefinitely. Finally, assume that net profit margin is forecast to be 9.5% for the next 5 years.
12. Compute the forecast total assets in 2010 for MATW.
a. $733,672
b. $740,659
c. $763,018
d. $779,641
e. $793,682
13. Compute the forecast gross profit in 2012.
a. $314,219
b. $333,072
c. $356,687
d. $535,021
e. $567,122
14. Assume that MATW maintains a DSO of 60 days. Forecast the 2010 Accounts Receivables.
a. $80,539
b. $83,761
c. $127,840
d. $132,953
e. $139,601
15. Assume that current assets represent 40% of total assets. Compute 2011 total current liabilities.
a. $134,926
b. $134,950
c. $136,568
d. $550,118
e. $583,277
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FSA 3321 – Fall 2009
Exam 2 – Version 1
Moore
16. Maintain the initial assumptions. The forecast dividend are expected to remain at $9 million per
year for at least the next 6 years. Given this information and the capital structure assumptions
used for the projects, the forecast Retained Earnings in 2010 is:
a. $566,672
b. $575,672
c. $585,011
d. $643,847
e. $652,847
Use the following for questions 17-20
- CFFO/OI
- Times Interest Earned
- Net Sales/Cash from sales
- CFFO/NOA
- Net Sales/Net Accounts Receivable
- Sales/Unearned Revenues
- Net Sales/Warranty Liabilities
- Asset Turnover (Sales/Total Assets)
- Total Liabilities/Total Equity
2004
0.88
14.3
0.99
0.35
12.0
11.45
114
1.50
1.92
2005
0.87
15.6
0.98
0.38
11.4
12.55
126
1.49
2.02
2006
0.85
15.1
1.01
0.37
11.0
14.52
118
1.48
1.98
2007
0.88
10.8
0.82
0.68
11.2
22.68
119
1.22
2.42
17. Which of the expense diagnostic ratios would provide a “red flag” raising concerns that
expenses may have been understated for the purpose of overstating net income in 2007?
a. Net Sales/Cash from sales
b. Times Interest Earned
c. CFFO/OI (Cash Flow from Operating Activities)/(Operating Income)
d. CFFO/NOA (Cash Flow from Operating Activities)/(Net Operating Assets)
e. Asset Turnover
18. Which of the revenue diagnostic ratios would provide a “red flag” raising concerns that
revenues may have been understated for the purpose of understating net income in 2007?
a. Net Sales/Cash from sales
b. Net Sales/Net Accounts Receivable
c. Asset Turnover
d. Net Sales/Unearned Revenues
e. Times Interest Earned
19. Which of the expense diagnostic ratios would provide a “red flag” raising concerns that
expenses may have been overstated for the purpose of understating net income in 2007?
a. Net Sales/Cash from sales
b. Total Liabilities/Total Equity
c. CFFO/OI (Cash Flow from Operating Activities)/(Operating Income)
d. CFFO/NOA (Cash Flow from Operating Activities)/(Net Operating Assets)
e. Asset Turnover
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FSA 3321 – Fall 2009
Exam 2 – Version 1
Moore
20. Which of the revenue diagnostic ratios would provide a “red flag” raising concerns that
revenues may have been overstated for the purpose of overstating net income in 2007?
a. Net Sales/Cash from sales
b. Net Sales/Net Accounts Receivable
c. Asset Turnover
d. Net Sales/Warranty Liabilities
e. Sales/Unearned Revenues
21. You have just computed the Beta of a stock to be 1.5 and the estimate the expected market
return next period is 11%. The estimated cost of equity is 13.2%. With an estimated long run
market risk premium of 6.8%, what risk free rate supports this cost of equity?
a. 2.00%
b. 3.00%
c. 4.00%
d. 5.00%
e. 6.00%
22. You are trying to value Matthews (financials at end of exam). It is now October 27, 2009.
Assuming MATW publishes its 10-K’s no earlier than 6 weeks after the fiscal year end, how many
quarters of activity must you forecast (today) when estimating the annual net income for the
2009 fiscal year?
a. 0
b. 1
c. 2
d. 3
e. 4
23. Which statistic is assess the variation of the dependent variable that is explained by the
independent variable?
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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FSA 3321 – Fall 2009
Exam 2 – Version 1
Moore
Consider the following information for Questions 24 through 26 (5 points each):
You have just estimated β for XYZ Corp. using the Capital Asset Pricing Model. Your regression
results follow. In addition, you also have performed research on the 10-K to get the balance sheet
information below. Your goal is to estimate the relevant costs of capital for XYZ Corp. Assume that
last year’s market return was 12% and the 10-year Treasury had a yield of 3.5%. Also, you found
the market risk premium over the last 3-years to be 7% and that interest rates are not expected to
change in the next 4 years. The Market Cap is $1,200 million and the tax rate is 30%. Regression
output for XYZ may be found on Page 8 of the exam booklet.
Balance Sheet (Millions)
Total Assets
Published β
1.60
2007
1,200
Current Liabilities
200
2.50%
Long Term Liabilities
Long-term Debt
Pension Liabilities
Capital Leases
Book Value of Equity
140
60
80
800
7.50%
6.00%
9.00%
24. Based on your analysis, compute the appropriate estimate of the cost of equity.
25.
Compute the Before-Tax weighted average cost of debt
26.
Compute the Before Tax Weighted average cost of capital.
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Average
Interest
Rate
FSA 3321 – Fall 2009
Exam 2 – Version 1
Moore
27.
Compute the upper and lower bounds on the cost of equity (95% confidence level). (6-Points)
. Use the information from problems 24-26 and the regression output on the next page.
28.
Compute the stock return for October 2008 using the information below. (5 Points)
Date
29Oct 2008
04Sep 2008
27Jul 2008
26Apr 2008
25Jan 2008
29.
Dividends and Splits
$ 0.026 Dividend
2 : 1 Stock Split
$ 0.025 Dividend
$ 0.025 Dividend
$ 0.025 Dividend
Dec 2008
Nov 2008
Oct 2008
Sep 2008
Aug 2008
Jul 2008
Jun 2008
Month End
Prices
24.58
24.10
23.05
22.06
44.10
43.53
43.96
Compute the split adjusted stock return for September 2008 using the above information.
Make sure to use end of 2008 price relatives like we did in the regression workshop. (5 points)
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FSA 3321 – Fall 2009
Exam 2 – Version 1
Moore
SUMMARY OUTPUT
Regression Statistics
Multiple R
R Square
Adjusted R Square
Standard Error
Observations
0.517
0.427
0.413
0.062
72
Coefficients
0.01
1.10
Intercept
X Variable 1
SUMMARY OUTPUT
Standard Error
0.01
0.21
t Stat
0.76
5.06
P-value Lower 95% Upper 95%
0.45
-0.01
0.02
0.00
0.65
1.49
Standard Error
0.01
0.28
t Stat
0.44
5.28
P-value Lower 95% Upper 95%
0.66
-0.01
0.02
0.00
0.91
2.03
Standard Error
0.01
0.34
t Stat
0.26
6.91
P-value Lower 95% Upper 95%
0.80
-0.01
0.02
0.01
1.31
1.69
PCP CAPM Regression
Regression Statistics
Multiple R
R Square
Adjusted R Square
Standard Error
Observations
0.570
0.324
0.313
0.056
60
Coefficients
0.00
1.47
Intercept
X Variable 1
SUMMARY OUTPUT
Regression Statistics
Multiple R
R Square
Adjusted R Square
Standard Error
Observations
Intercept
X Variable 1
0.494
0.355
0.314
0.050
48
Coefficients
0.034
1.60
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FSA 3321 – Fall 2009
Exam 2 – Version 1
Moore
Matthews International Corporation (MATW)
PERIOD ENDING
Total Revenue
Cost of Revenue
Gross Profit
Operating Expenses
Research Development
Selling General and Administrative
Total Operating Expenses
Operating Income or Loss
Income from Continuing Operations
Total Other Income/Expenses Net
Earnings Before Interest And Taxes
Interest Expense
Income Before Tax
Income Tax Expense
Minority Interest
Net Income
Income Statement
30-Sep-06 30-Sep-07
715,891
749,352
443,958
468,895
271,933
280,457
Matthews International Corporation (MATW)
PERIOD ENDING
Cash Flow from Operating Activities
Net Income
Operating Activity Accrual Adjustments
Total Cash Flow From Operating Activities
Cash Flow from Investing Activities
Capital Expenditures
Investments
Other Cashflows from Investing Activities
Total Cash Flows From Investing Activities
Cash Flow from Financing Activities
Dividends Paid
Sale Purchase of Stock
Net Borrowings
Other Cash Flows from Financing Activities
Total Cash Flows From Financing Activities
Statement of Cash Flows
30-Sep-06 30-Sep-07 30-Sep-08
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30-Sep-08
818,623
495,659
322,964
20,546
137,503
158,049
113,884
21,922
146,711
168,633
111,824
24,702
165,310
190,012
132,952
1,490
112,403
6,995
105,408
38,964
-2,971
66,444
2,744
111,835
8,119
103,716
38,990
-2,733
64,726
2,318
131,977
10,405
121,572
42,088
-3,293
79,484
66,444
-364
66,080
64,726
9,872
74,598
79,484
25,060
104,544
-19,397
-217
-29,164
-48,778
-20,649
-1,114
-16,925
-38,688
-12,053
419
-97,090
-108,724
-12,088
-15,463
-2,117
902
-28,766
-8,684
-40,002
17,746
3,834
-27,106
-9,003
-24,075
43,062
3,134
13,118
FSA 3321 – Fall 2009
Exam 2 – Version 1
Matthews International Corporation (MATW)
PERIOD ENDING
ASSETS
Current Assets
Cash And Cash Equivalents
Short Term Investments
Net Receivables
Inventory
Other Current Assets
Total Current Assets
Non-Current Assets
Long Term Investments
Property Plant and Equipment
Goodwill
Intangible Assets
Other Assets
Deferred Long Term Asset Charges
Total Non-Current Assets
Total Assets
Liabilities
Current Liabilities
Accounts Payable
Notes Payable - Current
Current Portion of Long Term Debt
Total Current Liabilities
Non-Current Liabilities
Long Term Debt
Other Liabilities
Deferred Long Term Liability Charges
Minority Interest
Total Non-Current Liabilities
Total Liabilities
Stockholders' Equity
Common Stock
Retained Earnings
Treasury Stock
Capital Surplus
Other Stockholder Equity
Total Stockholder Equity
Total Liabilities and Equity
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Moore
Balance Sheet
30-Sep-06 30-Sep-07
30-Sep-08
29,720
92
123,432
85,415
4,184
242,843
44,002
105
122,548
93,834
6,025
266,514
50,667
62
146,559
96,388
9,439
303,115
11,492
88,099
298,125
44,965
6,125
24,441
473,247
716,090
12,044
88,926
318,298
51,306
10,670
23,311
504,555
771,069
10,410
145,738
359,641
59,910
17,754
17,714
611,167
914,282
69,672
28,451
39,086
137,209
59,856
27,057
36,543
123,456
78,910
35,144
47,656
161,710
120,289
56,225
9,942
0
186,456
323,665
142,273
66,763
11,799
0
220,835
344,291
219,124
58,008
10,594
30,891
318,617
480,327
36,334
411,121
-92,451
33,953
3,468
392,425
716,090
36,334
467,846
-132,362
41,570
13,390
426,778
771,069
36,334
511,130
-157,780
47,250
-2,979
433,955
914,282