Question

PART A

Preparing comprehensive financial statement forecasts involves six steps. Among these steps are all the following except:

Multiple Choice

• Forecast depreciation expense and tax expense for each period.

• Forecast sales revenue for each period in the forecast horizon.

• Forecast the market price per share for the company’s common stock for each period.

• Forecast the company’s financial structure and dividend policy for each period

PART B

Consider the following table of Earnings Components:

	Firm A				Firm B				Firm C
Reported EPS	$	12			$	15			$	18
Analyst’s EPS composition:
Permanent component (βP = 5)		80	%			60	%			75	%
Transitory component (βT = 1)		10	%			35	%			25	%
Value-irrelevant component (β0 = 0)		10	%			5	%			0	%

The implied share price of Firm C’s stock is:

Multiple Choice

• $18.00

• $90.00

• $63.00

• $72.00

PART B

Company A’s interest ratio has fallen below the level required by its lender. The lender may not take which action?

Multiple Choice

• Replace the CEO of the company.

• Gain representation on the company’s board of directors.

• Veto payment of a dividend.

• Demand repayment of the loan.

Answer 1

Part A : Correct Option is Forecast the market price per share for the company’s common stock for each period.

Reason :

Preparing Comprehensive Financial Statement involves Forecasting depreciation expense and tax expense for each period,Forecasting sales revenue for each period in the forecast horizon , Forecasting the company’s financial structure and dividend policy for each period but doenot involve Forecasting the market price per share for the company’s common stock for each period.