Types
of growth
Ranking
A.
Increase share in a growing market.
1.
B.
Expand an existing market.
2.
C.
Acquire businesses.
3.
D.
Introduce new products to market.
4.
1.
Rank the types of growth from highest to lowest, where highest = 1,
in terms of the amount of shareholder value each typically creates
from the same incremental increase in revenue.
2.
True or False High-ROIC companies typically create more value by
attempting to raise the ROIC while lower-ROIC companies create more
value by growing the corporation.
3.
Most often in mature companies, a low ROIC indicates what?
4.
True or False When choosing between earnings and cash flow,
managers should concentrate on earnings because earning correlate
more closely with value creation than cash flow.
5.
True or False With respect to countries, the core valuation
principle is applicable, as made evident by the fact that U.S.
companies trade at higher multiples than companies in other
countries.
6.
When comparing the effect of an increase in growth on a high-ROIC
company and a low-ROIC company, a 1 percent increase in growth will
have the greatest impact on value for which company? (High ROIC or
Low ROIC) pick one
7.
True or False ABC Corporation has a ROIC of 22% currently. There is
a new project with an ROIC of 18% and a cost of capital of 13%. ABC
should reject this project because the project will lower the
companies ROIC.
8. How
do you calculate economic profit?
9. If
the growth of a company is 2 percent and the ROIC is 10 percent,
what is the investment rate?
A. 2
percent.B. 5 percent.C. 12 percent.D. 20 percent.
10.
For a given company, next year’s NOPLAT is $300. For the
foreseeable future, the growth rate will be 5 percent, the ROIC
will be 15 percent, and the weighted average cost of capital (WACC)
will be 13 percent. Using the key driver formula, calculate the
value of the company.
A.
$1,666.
B.
$2,222.
C.
$2,500.
D.
$2,750.
Chapter 3 -- Please Pick 6 of the questions below:
1.
True or False Changing capital structure creates value only if it
improves cash flows or raises the cost of capital.
2. How
can an acquisition create value? By increasing cash flow how?
3. For
publicly traded companies, which risk is reflected in the cost of
capital? Pick one (non-diversifiable risk or diversifiable
risk)
4.
True or False Diversifiable risk is the risk that remains after
diversification.
5.
True or False Managers should attempt to diversify risks because
that is what the average well diversified shareholder wants from
the company.
6.
True or False Most managers (out of self-preservation) tend not to
take cash flow risk that has a measurable probability of bankruptcy
that the company cannot survive in the short run.
7.
True or False When the faced with investing cash at low rates or
return (lower than the cost of capital) often managers use share
repurchases to avoiding value destruction.
8.
With respect to value creation, define financial engineering.
9.
When the intrinsic value of the stock is (greater than or less
than) the market price, the manager should repurchase the company’s
stock. Pick one.