Calculation of total rates of return (TRRs) of investment in Treasuries and mortgage pass-throughs under the following assumptions: 1. The investment period begins on January 10, 2016, and ends on May 30, 2017. 2. The total investment is $4,000,000 to purchase two Treasuries and two residential mortgage pass-throughs. 3. During the investment horizon, these securities are to experience two dramatically different patterns of interest rate changes with specific purchasing and selling yields. 4. The table below lists the two Treasuries and mortgage pass-throughs and the two interest rate scenarios. The investment plan is to allocate $1,000,000 on each security with possible cash left for short-term investment. All cash flows are to be reinvested in a high investment grade, money market instruments with an annualized yield of 0.5% for both rising and declining interest rate scenarios. All trades are settled on the beginning and ending dates of the investment period (ignore the settlement dates specified by SIFMA for mortgage securities). 5. Calculate actual and annualized total rates of return of the four securities and comment on all the reasons why the four securities performed differently in the two different interest rate environments. The reasons discussed in the commentary carry a significant weight in scoring a higher mark for the group investment project.
七、演绎法常用的句型 1.There are several reasons for …， but in general, they come down to three major ones. 有几个原因……，但一般，他们可以归结为三个主要的。 2.There are many factors that may account for …， but the following are the most typical ones. 有许多因素可能占…，但以下是最典型的。 3.Many ways can contribute to solving this problem, but the following ones may be most effective. 有很多方法可以解决这个问题，但下面的可能是最有效的。 4.Generally, the advantages can be listed as follows. 一般来说，这些优势可以列举如下。 5.The reasons are as follows.
你明白了吗？ 1. Are you with me? 都明白了吧？ 2. Do you know what I mean? 你懂我意思吧？ 3. You've got the picture? 你明白了吗？ 4. Do you understand? 懂了吗？ 5. Got it? 明白了吗？ 6. Are you following me? 你跟上我说的了吗？ 7. You know what I am talking about? 你知道我在说什么吗？ 8. Am I understood? 我说明白了吗？ 9. Are you clear? 你都清楚了吗？ 10. Did I make myself clear enough? 我都说明白了吗？
坚持做20件小事，你的人生大不同！ 1. Stay positive.You can listen to the cynics and doubters and believe that success is impossible or you can know that with faith and an optimistic attitude all things are possible. 保持积极乐观的心态。你可以选择听愤青和怀疑论者在那里叨念“成功是不可能的”，你也可以选择坚守信仰，保持乐观的心态，相信“万事皆有可能”。 2. When you wake up in the morning complete the following statement: My purpose is__. 每天早上起床的时候，就想想怎么填完整下面这句话：我的目标是__。 3. Take a morning walk of gratitude. It will create a fertile mind ready for success. 每天早晨进行一次“感恩散步”，这会滋养你的精神沃土，为成功做好准备。 4. Instead of being disappointed about where you are. Think optimistically about where you are going. 与其对你现在所处的位置感到失望，不如乐观地想想你前进的方向。 5. Eat. Eat breakfast like a king, lunch like a prince and dinner like a college kid with a maxed out charge card. 吃东西。早餐吃得像国王，午餐吃得像王子，晚餐吃得像用光了赊账卡限额的学生。 6. Remember that adversity is not a dead-end but a detour to a better outcome. 记住，逆境并不是尽头，而是更好的结果的一个转角而已。 7. Focus on learning, loving, growing and serving. 专注于学习、关爱、成长和服务。 8. Believe that everything happens for a reason. Expect good things to come out of challenging experiences. 你要相信凡事皆有因果。面对挑战才能有好事降临。 9. Don’t waste your precious energy on gossip, energy vampires, issues of the past, negative thoughts or things you cannot control. Instead invest your energy in the positive present moment. 别在流言蜚语上、过去的事情上、消极的想法上和你不能控制的事情上浪费你宝贵的精力。相反，积极的当下时刻才是你需要花精力的地方。 10. Mentor someone and be mentored by someone. 指导别人，同时也接受别人的指导。 11. Life isn't fair, but it's still good. 生活就是不公平的，但还过得下去。 12. Remember there’s no substitute for hard work. 什么也代替不了努力工作。 13. Each day when you wake up in the morning ask: "What are the three most important things I need to do today that will help me create the success I desire?"Then tune out all the distractions and focus on these actions. 每天早晨起来问问自己：“今天我要做哪三件可以助我成功的事情？”然后抛开杂念，全神贯注完成这些事情。 14. Complaining is like vomiting. Afterwards you feel better but everyone around you feels sick. 抱怨就跟呕吐一样。你自己是爽了，可你周围的人都得跟着遭殃。 15. Read more books than you did last year. 今年比去年多读点书。 16. Get more sleep. You can’t replace sleep with a double latte. 保证睡眠时间，一杯特浓拿铁替代不了一夜好眠。 17. Each day focus on what you get to do, not what you have to do. Life is a gift not an obligation. 每天关注在你想做什么，而不是你要做什么。生活是恩赐而不是义务。 18. Each night before you go to bed complete the following statements: I am thankful for __. Today I accomplished__. 每晚临睡前完成如下陈述：我对__充满感恩。今天我完成了__ 19. Smile and laugh more. They are natural anti-depressants. 微笑大笑，多多益善。这是天然的抗抑郁药。 20. Enjoy the ride. You only have one ride through life so make the most of it and enjoy it. 珍惜你的人生之旅。每个人只能有一次这样的人生旅行，尽你所能地享受珍惜你的人生吧。
Chart Of The Day: Monthly Home Payment Soars 40% To 2008 Levels Submitted by Tyler Durden on 07/29/2013 09:08 -0400 Credit Suisse recovery The following chart from Credit Suisse fully explains why the US housing "recovery" has just ground to a halt: in a few short weeks, US housing affordability (a topic we first covered a month ago ) has collapsed as a result of the monthly payment on the median home sold soaring by nearly 40% from under $800 to just shy of $1100, a level not seen since 2008. Now if only US personal incomes would keep pace, instead of doing this ... Average: 4.72222 Your rating: None Average: 4.7 ( 18 votes) !-- -- Tweet !-- - advertisements - .AR_2 .ob_empty {display: none;} .AR_2 .rec-link {color: #565656;text-decoration: none;font-size: 12px;} .AR_2 .rec-link:hover {color: #565656;text-decoration: underline;font-size: 12px;} .AR_2 {float: left;width:50%} .AR_2 li {list-style: none outside none !important;font-size: 10px;padding-bottom: 10px;line-height: 13px;margin:0;} .AR_2 .ob_org_header {color: #000000;text-decoration:bold; margin-left: 0px; font-size:14px;line-height:35px;} .AR_3 .rec-link {color: #565656;text-decoration: none;font-size: 12px;} .AR_3 .rec-link:hover {color: #565656;text-decoration: underline;font-size: 12px;} .AR_3 .rec-src-link {font-size: 12px;} .AR_3 li {padding-bottom: 10px;list-style: none outside none !important;font-size: 10px;line-height: 13px;margin:0;} .AR_3 .ob_dual_left, .AR_3 .ob_dual_right {float: left;padding-bottom: 0;padding-left: 2%;padding-top: 0;} .AR_3 .ob_org_header {color: #000000; text-decoration:bold; margin-left: 0px; font-size:14px;line-height:35px;} .AR_3 .ob_ads_header {color: #000000; text-decoration:bold; margin-left: 0px; font-size:14px;line-height:35px;} -- - advertisemen Login or register to post comments 22157 reads Printer-friendly version Send to friend Similar Articles You Might Enjoy: Chart Of The Day: Plunging Gasoline Demand vs The "Soaring" Recovery And Record Dow Jones Chart Of The Day: Build America Bond Yields Hit 11 Month High Chart Of The Day: Fed Interventions Since 2008 Chart Of The Day: Americans At Or Below 125% Of The Poverty Level Chart Of The Day: Savings Rate Drops To December 2007 Levels
Just Two 'Recession' Indicators Submitted by Tyler Durden on 05/01/2013 12:14 -0400 David Rosenberg Gluskin Sheff Personal Income Recession Rosenberg Monday's income and spending (and implicitly 'saving') data provided plenty of fodder at the headline level for any and every opinion. We explained in great detail just how weak the data really was ( here and here ). But the following two charts suggest that any optimism of organic consumption-led exuberance is completely misplaced. Retail sales of clothing is growing at the slowest pace since 2010; but while major store sales are about to drop negative YoY for the first time in over 3 years, the utter collapse in general merchandise sales is worse that at the peak of the last recession at -5% . It seems tough to see how a nation with an economy built on 70% consumption is not in a recessionary environment. And while this alone is a dismal signal for the discretionary upside of the US economy/consumer; as Gluskin Sheff's David Rosenberg points out real personal income net of transfer receipts plunged at a stunning 5.8% annual rate in Q1 . The other seven times we have seen such a collapse, the economy was either in recession of just coming out of one . But apart from that, everything is fine... Retail Sales collapsing... and absent the might of the US deficit, real personal income is also collapsing... Charts: Bloomberg and Gluskin Sheff Average: 4.75 Your rating: None Average: 4.8 ( 12 votes)
How The Super-Rich Avoid Paying Taxes Submitted by Tyler Durden on 02/15/2013 20:23 -0500 If you're one of the 1% of Americans who control over 40% of the country's wealth, life is full of choices. Among them - how best to keep all that money away from the government? The U.S. economic system offers no shortage of loopholes allowing the ultra-rich to shortchange Uncle Sam. The following infographic explains how exactly do the super rich hide that much money from the government every year? Source: TopAccountingDegrees.org Average: 5 Your rating: None Average: 5 ( 2 votes) Tweet Login or register to post comments 2123 reads Printer-friendly version Send to friend Similar Articles You Might Enjoy: Super Rich Indians Abandon Super Cars En Masse To Avoid Arrest In Massive Smuggling And Tax Fraud Crack Down Guest Post: Should The Rich Pay More Taxes? The Millionaire Man Exodus: What Obama Can Learn From The UK's "Tax The Rich" Plan Buffett Goes To Britain: Clegg Calls For 'One-Off' Tax On Super Rich Why 'Tax The Rich' Doesn't Solve Anything: It's The Math, Stupid
Chapter 2 Introduction to Financial Statement Analysis 2.1 The Disclosure of Financial Information 1) U.S. public companies are required to file their annual financial statements with the U.S. Securities and Exchange Commission on which form? A) 10-A B) 10-K C) 10-Q D) 10-SEC Answer: B Diff: 1 Skill: Definition 2) Which of the following is not a financial statement that every public company is required to produce? A) Income Statement B) Statement of Sources and Uses of Cash C) Balance Sheet D) Statement of Stockholdersʹ Equity Answer: B Diff: 2 Skill: Conceptual 3) The third party who checks annual financial statements to ensure that they are prepared according to GAAP and verifies that the information reported is reliable is the A) NYSE Enforcement Board. B) Accounting Standards Board. C) Securities and Exchange Commission (SEC). D) auditor. Answer: D Diff: 1 Skill: Definition 4) What is the role of an auditor in financial statement analysis? Answer: Key points: 1. To ensure that the annual financial statements are prepared accurately. 2. To ensure that the annual financial statements are prepared according to GAAP. 3. To verify that the information used in preparing the annual financial statements is reliable. Diff: 2 Skill: Conceptual Chapter 2 Introduction to Financial Statement Analysis 11 5) What are the four financial statements that all public companies must produce? Answer: 1. Balance Sheet 2. Income Statement 3. Statement of Cash Flows 4. Statement of Stockholderʹs Equity Diff: 2 Skill: Conceptual 2.2 The Balance Sheet 1) Which of the following balance sheet equations is incorrect? A) Assets - Liabilities = Shareholdersʹ Equity B) Assets = Liabilities + Shareholdersʹ Equity C) Assets - Current Liabilities = Long Term Liabilities D) Assets - Current Liabilities = Long Term Liabilities + Shareholdersʹ Equity Answer: C Diff: 2 Skill: Conceptual 2) Cash is a A) Long-term asset. B) Current Asset. C) Current Liability. D) Long-term liability. Answer: B Diff: 1 Skill: Definition 3) Accounts payable is a A) Long-term liability. B) Current Asset. C) Long-term asset. D) Current Liability. Answer: D Diff: 1 Skill: Definition 12 Berk/DeMarzo · Corporate Finance 4) A 30 year mortgage loan is a A) Long-term liability. B) Current Liability. C) Current Asset. D) Long-term asset. Answer: A Diff: 1 Skill: Definition 5) Which of the following statements regarding the balance sheet is incorrect? A) The balance sheet provides a snapshots of the firmʹs financial position at a given point in time. B) The balance sheet lists the firmʹs assets and liabilities. C) The balance sheet reports stockholdersʹ equity on the right hand side. D) The balance sheet reports liabilities on the left hand side. Answer: D Diff: 2 Skill: Conceptual Chapter 2 Introduction to Financial Statement Analysis 13 Use the table for the question(s) below. Consider the following balance sheet: Luther Corporation Consolidated Balance Sheet December 31, 2006 and 2005 (in $ millions) Assets 2006 2005 Liabilities and Stockholdersʹ Equity 2006 2005 Current Assets Current Liabilities Cash 63.6 58.5 Accounts payable 87.6 73.5 Accounts receivable 55.5 39.6 Notes payable / short-term debt 10.5 9.6 Inventories 45.9 42.9 Current maturities of long-term debt 39.9 36.9 Other current assets 6.0 3.0 Other current liabilities 6.0 12.0 Total current assets 171.0 144.0 Total current liabilities 144.0 132.0 Long-Term Assets Long-Term Liabilities Land 66.6 62.1 Long-term debt 239.7 168.9 Buildings 109.5 91.5 Capital lease obligations --- --- Equipment 119.1 99.6 Total Debt 239.7 168.9 Less accumulated depreciation (56.1) (52.5) Deferred taxes 22.8 22.2 Net property, plant, and equipment 239.1 200.7 Other long-term liabilities --- --- Goodwill 60.0 -- Total long-term liabilities 262.5 191.1 Other long-term assets 63.0 42.0 Total liabilities 406.5 323.1 Total long-term assets 362.1 242.7 Stockholdersʹ Equity 126.6 63.6 Total Assets 533.1 386.7 Total liabilities and Stockholdersʹ Equity 533.1 386.7 6) What is Lutherʹs net working capital in 2005? A) $12 million B) $27 million C) $39 million D) $63.6 million Answer: A Explanation: A) NWC = current assets - current liabilities = 144 - 132 = $12 million Diff: 2 Skill: Analytical 14 Berk/DeMarzo · Corporate Finance 7) If in 2006 Luther has 10.2 million shares outstanding and these shares are trading at $16 per share, then Lutherʹs Market-to-book ratio would be closest to: A) 0.39 B) 0.76 C) 1.29 D) 2.57 Answer: C Explanation: C) MTB = market cap / book value of equity = (10.2 million × 16) / 126.6 = 163.2 / 126.6 = 1.289 Diff: 2 Skill: Analytical 8) When using the book value of equity, the debt to equity ratio for Luther in 2006 is closest to: A) 2.21 B) 2.29 C) 2.98 D) 3.03 Answer: B Explanation: B) D/E = Total Debt / Total Equity Total Debt = (notes payable (10.5) + current maturities of long-term debt (39.9) + long-term debt (239.7) = 290.1 million Total Equity = 126.6, so D/E = 290.1 / 126.6 = 2.29 Diff: 2 Skill: Analytical 9) If in 2006 Luther has 10.2 million shares outstanding and these shares are trading at $16 per share, then using the market value of equity, the debt to equity ratio for Luther in 2006 is closest to: A) 1.71 B) 1.78 C) 2.31 D) 2.35 Answer: B Explanation: B) D/E = Total Debt / Total Equity Total Debt = (notes payable (10.5) + current maturities of long-term debt (39.9) + long-term debt (239.7) = 290.1 million Total Equity = 10.2 × $16 = 163.2, so D/E = 290.1 / 163.2 = 1.78 Diff: 2 Skill: Analytical Chapter 2 Introduction to Financial Statement Analysis 15 10) If in 2006 Luther has 10.2 million shares outstanding and these shares are trading at $16 per share, then what is Lutherʹs Enterprise Value? A) -$63.3 million B) $353.1 million C) $389.7 million D) $516.9 million Answer: C Explanation: C) Enterprise value = MVE + Debt - Cash = 10.2 × $16 + 290.1 - 63.6 = 389.7 Diff: 2 Skill: Analytical 11) Lutherʹs current ratio for 2006 is closest to: A) 0.84 B) 0.87 C) 1.15 D) 1.19 Answer: D Explanation: D) current ratio = current assets / current liabilities = 171 / 144 = 1.19 Diff: 2 Skill: Analytical 12) Lutherʹs quick ratio for 2005 is closest to: A) 0.77 B) 1.31 C) 1.09 D) 0.92 Answer: A Explanation: A) quick ratio = (current assets - inventory) / current liabilities quick ratio = (144.0 - 42.9) / 132 = 0.77 Diff: 2 Skill: Analytical 16 Berk/DeMarzo · Corporate Finance 13) The change in Lutherʹs quick ratio from 2005 to 2006 is closest to: A) a decrease of .10 B) an increase of .10 C) a decrease of .15 D) an increase of .15 Answer: B Explanation: B) quick ratio in 2006 = (171.0 - 45.9)/144 = .87 quick rat io 2005 = (144.0 - 42.9) / 132 = .77 so the quick ratio increased by .87 - .77 = .10 Diff: 3 Skill: Analytical 14) If on December 31, 2005 Luther has 8 million shares outstanding trading at $15 per share., then what is Lutherʹs market-to-book ratio? Answer: market-to-book = market value of equity / book value of equity market-to-book = 8 million × $15 / $63.6 = 1.89 Diff: 2 Skill: Analytical 15) If on December 31, 2005 Luther has 8 million shares outstanding trading at $15 per share., then what is Lutherʹs enterprise value? Answer: Enterprise value = Market value of equity + Debt - Cash market value of equity = 8 million × $15 = $120 million Debt = notes payable + current maturities of long-term debt + long-term debt Debt = 9.6 + 36.9 + 168.9 = 215.4 Cash = 58.5 So, enterprise value = $120 + 215.4 - 58.5 = $276.90 Diff: 2 Skill: Analytical 2.3 The Income Statement 1) Which of the following statements regarding the income statement is incorrect? A) The income statement shows the earnings and expenses at a given point in time. B) The income statement shows the flow of earnings and expenses generated by the firm between two dates. C) The last or ʺbottomʺ line of the income statement shows the firmʹs net income. D) The first line of an income statement lists the revenues from the sales of products or services. Answer: A Diff: 2 Skill: Conceptual Chapter 2 Introduction to Financial Statement Analysis 17 2) Gross profit is calculated as A) Total sales - cost of sales - selling, general and administrative expenses - depreciation and amortization B) Total sales - cost of sales - selling, general and administrative expenses C) Total sales - cost of sales D) None of the above Answer: C Diff: 2 Skill: Conceptual 3) Which of the following is not an operating expense? A) Interest expense B) Depreciation and amortization C) Selling, general and administrative expenses D) Research and development Answer: A Diff: 2 Skill: Conceptual 18 Berk/DeMarzo · Corporate Finance Use the table for the question(s) below. Consider the following income statement and other information: Luther Corporation Consolidated Income Statement Year ended December 31 (in $ millions) 2006 2005 Total sales 610.1 578.3 Cost of sales (500.2) (481.9) Gross profit 109.9 96.4 Selling, general, and administrative expenses (40.5) (39.0) Research and development (24.6) (22.8) Depreciation and amortization (3.6) (3.3) Operating income 41.2 31.3 Other income --- --- Earnings before interest and taxes (EBIT) 41.2 31.3 Interest income (expense) (25.1) (15.8) Pretax income 16.1 15.5 Taxes (5.5) (5.3) Net income 10.6 10.2 Price per share $16 $15 Shares outstanding (millions) 10.2 8.0 Stock options outstanding (millions) 0.3 0.2 Stockholdersʹ Equity 126.6 63.6 Total Liabilities and Stockholdersʹ Equity 533.1 386.7 4) For the year ending December 31, 2006 Lutherʹs earnings per share are closest to: A) $1.01 B) $1.04 C) $1.58 D) $4.04 Answer: B Explanation: B) EPS = Net Income / Shares Outstanding = $10.6 / 10.2 = $1.04 Diff: 1 Skill: Analytical Chapter 2 Introduction to Financial Statement Analysis 19 5) Assuming that Luther has no convertible bonds outstanding, then for the year ending December 31, 2006 Lutherʹs diluted earnings per share are closest to: A) $1.01 B) $1.04 C) $1.53 D) $3.92 Answer: A Explanation: A) Diluted EPS = Net Income / (shares outstanding + options contracts outstanding + shares possible from convertible bonds outstanding) = 10.6 / (10.2 + 0.3 + 0.0) = $1.01 Diff: 2 Skill: Analytical 6) Lutherʹs Operating Margin for the year ending December 31, 2005 is closest to: A) 1.8% B) 2.7% C) 5.4% D) 16.7% Answer: C Explanation: C) Operating Margin = Operating Income / Sales OM = 31.3 / 578.3 = .054 or 5.4% Diff: 1 Skill: Analytical 7) Lutherʹs Net Profit Margin for the year ending December 31, 2005 is closest to: A) 1.8% B) 2.7% C) 5.4% D) 16.7% Answer: A Explanation: A) Net Profit Margin = Net Income / Total Sales = 10.2 / 578.3 = .018 or 1.8% Diff: 1 Skill: Analytical 20 Berk/DeMarzo · Corporate Finance 8) Lutherʹs earnings before interest, taxes, depreciation, and amortization (EBITDA) for the year ending December 31, 2006 is closest to: A) 19.7 million B) 37.6 million C) 41.2 million D) 44.8 million Answer: D Explanation: D) EBITDA = EBIT + Depreciation Amortization = 41.2 + 3.6 = $ 44.8 million Diff: 1 Skill: Analytical 9) Lutherʹs return on equity (ROE) for the year ending December 31, 2006 is closest to: A) 2.0% B) 6.5% C) 8.4% D) 12.7% Answer: C Explanation: C) ROE = Net income / shareholdersʹ equity = 10.6 / 126.6 = .084 or 8.4% Diff: 2 Skill: Analytical 10) Lutherʹs return on assets (ROA) for the year ending December 31, 2006 is closest to: A) 2.0% B) 6.5% C) 8.4% D) 12.7% Answer: A Explanation: A) ROA = Net income / total assets. This is a little tricky in that total assets arenʹt given in the problem. The student must remember the basic balance sheet equation A = L + SE. Total Liabilities and Shareholdersʹ Equity is given and this is the same as total assets. So ROA = 10.6 / 533.1 = .020 or 2.0% Diff: 3 Skill: Analytical Chapter 2 Introduction to Financial Statement Analysis 21 11) Lutherʹs price - earnings ration (P/E) for the year ending December 31, 2006 is closest to: A) 7.9 B) 10.1 C) 15.4 D) 16.0 Answer: C Explanation: C) P/E = Price / EPS or Market Cap / Earnings = (10.2 × $16) / $10.6 = 15.4 Diff: 3 Skill: Analytical 12) Calculate Lutherʹs return of equity (ROE), return of assets (ROA), and price-to-earnings ratio (P/E) for the year ending December 31, 2005. Answer: ROE = NI / shareholder equity = 10.2 / 63.6 = .160 or 16.0% ROA = NI/ total assets Here total assets are not given, but we know that Total Assets = Total Liabilities + Shareholder Equity, so ROA = 10.2 / 386.7 = .026 or 2.6% P/E = price / EPS or Market Cap / NI = (8.0 × $15) / $10.2 = 11.8 Diff: 2 Skill: Analytical 13) If Lutherʹs accounts receivable were $55.5 million in 2006, then calculate Lutherʹs accounts receivable days for 2006. Answer: Accounts receivable days = accounts receivable sales / 365 = 55.5 610.1/365 = 33.2 days Diff: 2 Skill: Analytical 2.4 The Statement of Cash Flows 1) Which of the following is not a section on the cash flow statement? A) Income generating activities B) Investing activities C) Operating activities D) Financing activities Answer: A Diff: 1 Skill: Conceptual 22 Berk/DeMarzo · Corporate Finance 2) Which of the following statements regarding net income transferred to retained earnings is correct? A) Net income = net income transferred to retained earnings - dividends B) Net income transferred to retain earnings = net income + dividends C) Net income = net income transferred to retain earnings + dividends D) Net income transferred to retain earnings - net income = dividends Answer: C Diff: 2 Skill: Conceptual 3) Which of the following is not a reason why cash flow may not equal net income? A) Amortization is added in when calculating net income. B) Changes in inventory will change cash flows but not income. C) Capital expenditures are not recorded on the income statement. D) Depreciation is deducted when calculating net income. Answer: A Diff: 1 Skill: Conceptual 4) Which of the following adjustments to net income is not correct if you are trying to calculate cash flow from operating activities? A) Add increases in accounts payable B) Add back depreciation C) Add increases in accounts receivable D) Deduct increases in inventory Answer: C Diff: 2 Skill: Conceptual 5) Which of the following adjustments is not correct if you are trying to calculate cash flow from financing activities? A) Add dividends paid B) Add any increase in long term borrowing C) Add any increase in short-term borrowing D) Add proceeds from the sale of stock Answer: A Diff: 2 Skill: Conceptual Chapter 2 Introduction to Financial Statement Analysis 23 Use the tables for the question(s) below. Consider the following financial information: Luther Corporation Consolidated Balance Sheet December 31, 2006 and 2005 (in $ millions) Assets 2006 2005 Liabilities and Stockholdersʹ Equity 2006 2005 Current Assets Current Liabilities Cash 63.6 58.5 Accounts payable 87.6 73.5 Accounts receivable 55.5 39.6 Notes payable / short-term debt 10.5 9.6 Inventories 45.9 42.9 Current maturities of long-term debt 39.9 36.9 Other current assets 6.0 3.0 Other current liabilities 6.0 12.0 Total current assets 171.0 144.0 Total current liabilities 144.0 132.0 Long-Term Assets Long-Term Liabilities Land 66.6 62.1 Long-term debt 239.7 168.9 Buildings 109.5 91.5 Capital lease obligations --- --- Equipment 119.1 99.6 Total Debt 239.7 168.9 Less accumulated depreciation (56.1) (52.5) Deferred taxes 22.8 22.2 Net property, plant, and equipment 239.1 200.7 Other long-term liabilities --- --- Goodwill 60.0 -- Total long-term liabilities 262.5 Other long-term assets 63.0 42.0 Total liabilities 406.5 323.1 Total long-term assets 362.1 242.7 Stockholdersʹ Equity 126.6 63.6 Total Assets 533.1 386.7 Total liabilities and Stockholdersʹ Equity 533.1 386.7 24 Berk/DeMarzo · Corporate Finance Luther Corporation Consolidated Income Statement Year ended December 31 (in $ millions) 2006 2005 Total sales 610.1 578.3 Cost of sales (500.2) (481.9) Gross profit 109.9 96.4 Selling, general, and administrative expenses (40.5) (39.0) Research and development (24.6) (22.8) Depreciation and amortization (3.6) (3.3) Operating income 41.2 31.3 Other income --- --- Earnings before interest and taxes (EBIT) 41.2 31.3 Interest income (expense) (25.1) (15.8) Pretax income 16.1 15.5 Taxes (5.5) (5.3) Net income 10.6 10.2 Dividends Paid 5.1 5.0 Price per Share $16 $15 Shares outstanding (millions) 10.2 8.0 Stock options outstanding (millions) 0.3 0.2 Stockholders’ Equity 126.6 63.6 Total Liabilities and Stockholders’ Equity 533.1 386.7 6) For the year ending December 31, 2006 Lutherʹs cash flow from operating activities is ? Answer: Operating cash flow = NI + Depreciation - chg in AR + chg in AP - chg in INV Operating cash flow = 10.6 + 3.6 - (55.5 - 39.6) + (87.6 - 73.5) - (45.9 - 42.9) = 9.4 Diff: 3 Skill: Analytical Chapter 2 Introduction to Financial Statement Analysis 25 7) For the year ending December 31, 2006 Lutherʹs cash flow from financing activities is? Answer: Cash flow from financing: - dividends paid (5.1) + sale or (purchase) of stock 57.5* + increase in ST borrowing 3.9 + increase in LT borrowing 70.8 Cash flow from financing 127.1 NI transferred to RE(2006) = NI - Dividends paid = 10.6 - 5.1 = 5.6 sale of stock = Equity(2006) - NI transferred to RE(2006) - Equity(2005) = 126.6 - 5.5 - 63.6 = 57.5 increase in ST borrowing = chg in notes payable + chg in current portion of LT debt = (10.5 - 9.6) + (39.9 - 36.9) = 3.9 increase in LT borrowing = 239.7 - 168.9 = 70.8 Diff: 3 Skill: Analytical 2.5 Other Financial Statement Information 1) In addition to the balance sheet, income statement, and the statement of cash flows, a firmʹs complete financial statements will include all of the following except: A) Management discussion and Analysis B) Notes to the financial statements C) Securities and Exchange Commissionʹs (SEC) commentary D) Statement of stockholdersʹ equity Answer: C Diff: 1 Skill: Conceptual 2) Off-balance sheet transactions are required to be disclosed A) in the management discussion and analysis. B) in the auditorʹs report. C) in the Securities and Exchange Commissionʹs commentary. D) in the statement of stockholdersʹ equity. Answer: A Diff: 2 Skill: Conceptual 26 Berk/DeMarzo · Corporate Finance 3) Details of acquisitions, spin-offs, leases, taxes, and risk management activities are given A) in the management discussion and analysis. B) in the Securities and Exchange Commissionʹs commentary. C) in the auditorʹs report. D) in the notes to the financial statements. Answer: D Diff: 2 Skill: Conceptual 2.6 Accounting Manipulation 1) In response to corporate scandals such as Enron and WorldCom, in 2002 congress passed a law that requires, among other things, that CEOs and CFOs certify the accuracy and appropriateness of their firmʹs financial statements and increases he penalties against them if the financial statements later prove to be fraudulent. The name of this act is? A) The Glass-Steagall Act B) The Sarbanes-Oxley Act C) The Accuracy in Accounting Act D) The McCain-Feingold Act Answer: B Diff: 1 Skill: Definition
Chapter 1 The Corporation 1.1 The Four Types of Firms 1) A sole proprietorship is owned by: A) One person B) Two of more persons C) Shareholders D) Bankers Answer: A Diff: 1 Skill: Definition 2) Which of the following organization forms for a business does not avoid double taxation? A) Limited Partnership B) ʺCʺ Corporation C) ʺSʺ Corporation D) Limited Liability Company Answer: B Diff: 1 Skill: Conceptual 3) Which of the following organization forms has the most revenue? A) ʺSʺ Corporation B) Limited Partnership C) ʺCʺ Corporation D) Limited Liability Company Answer: C Diff: 1 Skill: Conceptual 4) Which of the following organization forms accounts for the greatest number of firms? A) ʺSʺ Corporation B) Limited Partnership C) Sole Proprietorship D) ʺCʺ Corporation Answer: C Diff: 1 Skill: Conceptual 2 Berk/DeMarzo · Corporate Finance 5) Which of the following is NOT an advantage of a sole proprietorship? A) Single taxation B) Ease of setup C) Limited liability D) No separation of ownership and control Answer: C Diff: 2 Skill: Conceptual 6) Which of the following statements regarding limited partnerships is true? A) There is no limit on a limited partnerʹs liability. B) A limited partnerʹs liability is limited by the amount of their investment. C) A limited partner is not liable until all the assets of the general partners have been exhausted. D) A general partnerʹs liability is limited by the amount of their investment. Answer: B Diff: 2 Skill: Conceptual 7) Which of the following is / are an advantage of incorporation? A) Access to capital markets B) Limited liability C) Unlimited life D) All of the above Answer: D Diff: 2 Skill: Conceptual 8) Which of the following statements is most correct? A) An advantage to incorporation is that it allows for less regulation of the business. B) An advantage of a corporation is that it is subject to double taxation. C) Unlike a partnership, a disadvantage of a corporation is that has limited liability. D) Corporations face more regulations when compared to partnerships. Answer: D Diff: 2 Skill: Conceptual Chapter 1 The Corporation 3 9) A limited liability company is essentially A) a limited partnership without limited partners. B) a limited partnership without a general partner. C) just another name for a limited partnership. D) just another name for a corporation. Answer: B Diff: 1 Skill: Conceptual 10) The distinguishing feature of a corporation is that A) their is no legal difference between the corporation and its owners. B) it is a legally defined, artificial being, separate from its owners. C) it spreads liability for its corporate obligations to all shareholders. D) provides limited liability only to small shareholders. Answer: B Diff: 2 Skill: Conceptual 11) Which of the following are subject to double taxation? A) Corporation B) Partnership C) Sole proprietorship D) A and B Answer: A Diff: 1 Skill: Conceptual 12) You own 100 shares of a ʺCʺ Corporation. The corporation earns $5.00 per share before taxes. Once the corporation has paid any corporate taxes that are due, it will distribute the rest of its earnings to its shareholders in the form of a dividend. If the corporate tax rate is 40% and your personal tax rate on (both dividend and non-dividend) income is 30%, then how much money is left for you after all taxes have been paid? A) $210 B) $300 C) $350 D) $500 Answer: A Explanation: A) EPS × number of shares × (1 - Corporate Tax Rate) × (1 - Individual Tax Rate) $5.00 per share × 100 shares × (1 - .40) x (1 - .30) = $210 Diff: 2 Skill: Analytical 4 Berk/DeMarzo · Corporate Finance 13) You own 100 shares of a Sub Chapter ʺSʺ Corporation. The corporation earns $5.00 per share before taxes. Once the corporation has paid any corporate taxes that are due, it will distribute the rest of its earnings to its shareholders in the form of a dividend. If the corporate tax rate is 40% and your personal tax rate on (both dividend and non-dividend) income is 30%, then how much money is left for you after all taxes have been paid? A) $210 B) $300 C) $350 D) $500 Answer: C Explanation: C) EPS × number of shares × (1 - Individual Tax Rate) $5.00 per share × 100 shares × (1 - .30) = $350 Diff: 2 Skill: Analytical 14) You are a shareholder in a ʺCʺ corporation. This corporation earns $4 per share before taxes. After it has paid taxes, it will distribute the remainder of its earnings to you as a dividend. The dividend is income to you, so you will then pay taxes on these earnings. The corporate tax rate is 35% and your tax rate on dividend income is 15%. The effective tax rate on your share of the corporations earnings is closest to: A) 15% B) 35% C) 45% D) 50% Answer: C Explanation: C) Fist the corporation pays taxes. It earned $4 per share, but must pay $4 × .35 = $1.40 to the government in corporate taxes. That leaves $4.00 - $1.40 = $2.60 to distribute to the shareholders. However, the shareholder must pay $2.60 × .15 = $0.39 in income taxes on this amount, leaving only $2.21 to the shareholder after all taxes are paid. The total amount paid in taxes is $1.40 + 0.39 = $1.79. The effective tax rate is then $1.79 ÷ $4 = .4475 or 44.75% which is closest to 45%. Diff: 3 Skill: Analytical 15) Explain the benefits of incorporation. Answer: 1. Limited liability 2. Unlimited life 3. Access to capital markets / availability of outside funding Diff: 2 Skill: Conceptual Chapter 1 The Corporation 5 16) Explain the difference between a sub-chapter ʺSʺ corporation and a sub-chapter ʺCʺ corporation. Answer: ʺCʺ Corporation ʺSʺ Corporation Publicly traded stock Privately traded stock Unlimited shareholders No more than 75 shareholders Double taxation Taxed like a partnership Diff: 2 Skill: Conceptual 1.2 Ownership Versus Control of Corporations 1) In a corporation, the ultimate decisions regarding business matters are made by A) the Board of Directors. B) debt holders. C) shareholders. D) investors. Answer: A Diff: 1 Skill: Conceptual 2) The person charged with running the corporation by instituting the rules and policies set by the board of directors is called A) the Chief Operating Officer. B) the Company President. C) the Chief Executive Officer. D) the Chief Financial Officer. Answer: C Diff: 1 Skill: Definition 3) The Principal-Agent Problem arises A) because managers have little incentive to work in the interest of shareholders when this means working against their own self-interest. B) because of the separation of ownership and control in a corporation. C) Both A and B D) None of the above Answer: C Diff: 1 Skill: Conceptual 6 Berk/DeMarzo · Corporate Finance 4) If shareholders are unhappy with a CEOʹs performance, they are most likely to A) buy more shares in an effort to gain control of the firm. B) file a shareholder resolution. C) replace the CEO through a grassroots shareholder uprising. D) sell their shares. Answer: D Diff: 2 Skill: Conceptual 5) A ________, is when a rich individual or organization purchases a large fraction of the stock of a poorly performing firm and in doing so gets enough votes to replace the board of directors and the CEO. A) shareholder proposal B) leveraged buyout C) shareholder action D) hostile takeover Answer: D Diff: 2 Skill: Definition 6) Which of the following statements is false? A) In bankruptcy, management is given the opportunity to reorganize the firm and renegotiate with debt holders. B) Because a corporation is a separate legal entity, when it fails to repay its debts, the people who lent to the firm, the debt holders are entitled to seize the assets of the corporation in compensation for the default. C) As long as the corporation can satisfy the claims of the debt holders, ownership remains in the hands of the equity holders. D) If the corporation fails to satisfy debt holdersʹ claims, debt holders may lose control of the firm. Answer: D Explanation: D) If the corporation fails to satisfy debt holdersʹ claims, debt holders may take control of the firm. Diff: 2 Skill: Conceptual 7) What strategies are available to shareholders to help ensure that managers are motivated to act in the interest of the shareholders rather than their own interest? Answer: 1. The threat of a hostile takeover 2. Shareholder initiatives 3. Performance based compensation Diff: 3 Skill: Conceptual Chapter 1 The Corporation 7 1.3 The Stock Market Use the table for the question(s) below. Consider the following two quotes for XYZ stock: November 11th November 18th Ask: 25.25 Ask: 26.00 Bid: 25.20 Bid: 25.93 1) How much would you have to pay to purchase 100 shares of XYZ stock on November 18th? A) $2520 B) $2525 C) $2593 D) $2600 Answer: D Explanation: D) 100 shares × $26.00 (ask price) = $2600 Diff: 1 Skill: Analytical 2) How much would you receive if you sold 200 shares of XYZ stock on November 11th? A) $5050 B) $5040 C) $5186 D) $5200 Answer: B Explanation: B) 200 shares × $25.20 (bid price) = $5040 Diff: 1 Skill: Analytical 3) The largest stock market in the world is A) the London Stock Exchange. B) NASDAQ. C) the American Stock Exchange. D) the New York Stock Exchange. Answer: D Diff: 1 Skill: Definition 8 Berk/DeMarzo · Corporate Finance 4) An investment is said to be liquid if the investment A) has large day to day fluctuations in price. B) has a large bid-ask spread. C) can easily be converted into cash. D) is traded on a stock exchange. Answer: C Diff: 2 Skill: Definition 5) What type of company trades on an organized stock exchange? A) a limited liability company. B) a private company. C) an ʺSʺ corporation. D) a public company. Answer: D Diff: 1 Skill: Definition 6) Which of the following statements is false? A) On Nasdaq, stocks can and do have multiple market makers who compete with each other. Each market maker must post bid and ask prices in the Nasdaq network where they can be viewed by all participants. B) Bid prices exceed ask prices. C) Because customers always buy at the ask and sell at the bid, the bid-ask spread is a transaction cost investors have to pay in order to trade. D) On the floor of the NYSE, market makers (known on the NYSE as specialists) match buyers and sellers. Answer: B Explanation: B) Ask prices exceed bid prices. Diff: 2 Skill: Conceptual Chapter 1 The Corporation 9 Use the table for the question(s) below. Consider the following two quotes for XYZ stock: November 11th November 18th Ask: 25.25 Ask: 26.00 Bid: 25.20 Bid: 25.93 7) What are your net proceeds if you purchased 2500 shares of XYZ stock on November 11th and then sold them a week later on November 18th? Answer: sell at bid price 11/18 = 2500 × $25.93 = $64,825 now subtract the price paid for the shares buy at ask price 11/11 = 2500 × $25.25 = $63,125 so net proceeds = 64,825 - 63,125 = $1700 Diff: 2 Skill: Analytical 8) Explain the main differences between the NYSE and NASDAQ stock markets. Answer: Key points: NYSE has physical location—NASDAQ is an electronic market. NYSE has one specialist in each stock and his role is to match buyers and sellers. NASDAQ has multiple market makers (dealers) in each stock who stand ready to trade on their own accounts. Diff: 2 Skill: Conceptual
Visualizing The Impotence Of Bernanke's Wealth Transmission Channel Submitted by Tyler Durden on 11/11/2012 13:39 -0500 We have discussed the apparent (though anecdotal) divergence between refinancing rates and interest rates a number of times. Furthermore, we have exclaimed at the significant drop in refi rates since QE3 (following the initial spike) noting the unintended consequence that US households are increasingly realizing that rates will never be allowed to rise and so every rate rise is not a signal to rush into refinancing but instead a signal to pause for lower rates . The chart below is somewhat surprising in its clarity as Goldman Sachs note that despite record low mortgage rates, borrowers are refinancing at a rate of just 20-30% per year - far lower than prepayment speeds we would expect. The great majority of 'in the money' mortgages are not being refinanced and while we suggest this is the unintended Bernanke conditioning, Goldman also opines that industry capacity and underwriting standards on the supply side; and consumer awareness and household behavior on the demand side. Via Goldman Sachs: I n normal times, borrowers with high credit quality would have refinanced as soon as mortgage interest rates declined. The chart above shows that this is largely the case before 2009 for Fannie Mae 30-year fixed rate mortgages. The percent of loans that are “in-the-money” for refinancing (defined as the borrower’s mortgage rate being at least 100bps above the market rate) is highly correlated with the subsequent prepayment speeds. However, this relationship broke down in 2008. Nearly 80% of outstanding Fannie Mae 30-year fixed rate mortgages are currently in-the-money for refinancing, but the actual prepayment speeds are much lower than what the historical experience would predict. Why aren’t more borrowers, especially those with stellar credit quality, taking advantage of today’s low mortgage interest rates and refinancing? On the supply side , one obvious suspect is the fact that industry origination capacity is constrained. The capacity constraints are a symptom of both substantial industry contraction as well as uncertainties related to reps and warranties exposure, the future of the regulatory landscape, and the outlook for housing and economy. Nevertheless, capacity constraints imply tight lending standards and less refinancing originations. This is consistent with our finding that borrowers with the highest FICO and lowest LTV are prepaying relatively faster today. Due to the tightness of industry constraints, today’s mortgage lenders are doing less advertising, marketing, and outreaching to encourage refinancing. This is consistent with our finding that the baseline prepayment speeds of all mortgages are lower than it was in 2003. On the demand side , we are harder pressed to think of reasons why borrowers, especially those with good credit and sufficient home equity, are not refinancing. One possibility is that many borrowers are not aware of how much the market rate has declined . Another possibility is that borrowers may think that lending standards are so tight today that they would be denied of refinancing, or that the process would be too much an ordeal. Lastly, household behavior such as inertia and procrastination that have been documented in the academic literature may be at play in the mortgage market, especially with industry solicitations having dropped off so substantially . It would seem - once again - that the so-called raison d'etre for QE3 is entirely broken, whether easing to ZIRP of LSAP, Bernanke's wealth-building transmission channel via housing is entirely broken ... and critically it is the banks once again that both benefit from the front-running capability as well as becoming the plug in the pipeline... Average: 4.375 Your rating: None Average: 4.4 ( 8 votes) Tweet Login or register to post comments 7434 reads Printer-friendly version Send to friend Similar Articles You Might Enjoy: QA with Alan Boyce: Freddie Mac and Inverse Floaters Pimco Borrows A Record $88 Billion To Bet On Fed's Upcoming MBS Monetization Obama Bluffs on ReFi? Mortgage Refinancing And The Fed's Perverse Incentives Fed Unintended Consequence #267435: Homeowners Front-Running QE By Not Refinancing
Spot The Foreign Demand For US Treasurys Under Obama Submitted by Tyler Durden on 11/06/2012 11:01 -0500 Obama Administration POMO POMO Few charts capture as effectively the shift in foreign demand for US Treasurys over the past 4 years, or under the Obama administration, as the following two, courtesy of the latest TBAC Q4 refunding presentation . They are quite self-explanatory. Total foreign demand: Bills and Coupons. And foreign demand for just Coupon paper. So who is picking up the slack? And what is another name for Primary Dealers?...think POMO.... Why, the Fed of course. Average: 4.846155 Your rating: None Average: 4.8 ( 13 votes) Tweet Login or register to post comments 10871 reads Printer-friendly version Send to friend Similar Articles You Might Enjoy: Guess Who Was The Biggest Beneficiary From The Fed's POMO Bonanza Fed Forces Primary Dealers To Buy Ever More Short-Dated Paper As Corporate Bond Holdings Drop To Decade Low As US Closes June With $15,856,367,214,324.44 In Federal Debt, US Debt/GDP Hits Post WWII High Of 101.5% 2 Forces Battling In The Treasury Market - Friday's Large Buyer vs This Week's Auction Setup Sellers Fed's "Other Assets" Hit All Time High Of $205 Billion
The Tax Facts: "You Do The Math" Submitted by Tyler Durden on 10/16/2012 18:10 -0400 As UBS reported said, in both the Republican primary and the general election campaigns in 2012, various Presidential candidates in discussing taxes have recommended that voters "do the math" in evaluating various tax change proposals. The following preliminary 2010 data from the Internal Revenue Service (IRS) should be helpful for performing such calculations. We present a variety of self-explanatory exhibits sourced directly from the IRS, which include all the DIY math on income distribution, tax rate schedules, who is affected if Bush taxes cuts for high-income taxpayers expire, sources of itemized deductions and higher incomes, the size distribution of businesses paying individual income taxes, and everything else that may and likely will be thrown out, if incorrectly, by one or both candidates tonight, in an attempt to rally any one group of people behind the cause (what cause exactly remains to be seen). Source: UBS Average: 4.166665 Your rating: None Average: 4.2 ( 6 votes) Tweet Login or register to post comments 8425 reads Printer-friendly version Send to friend Similar Articles You Might Enjoy: Why 'Tax The Rich' Doesn't Solve Anything: It's The Math, Stupid Your Taxes At Work: All You Need To Know About Who Pays What Taxes In The US Romney Enjoyed At Most 87% Of His $21mm Income In 2010 Pick Your Poison With Barton Biggs Greenspan Suggested Cutting Taxes on the Wealthy to Increase Debt so the Fed Wouldn't "Lose Control of Monetary Policy"
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