投资学10版习题答案19文档格式.docx
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SmileWhiteamortizesitsgoodwilloverashorterperiodthandoesQuickBrush.SmileWhitethereforepresentsmoreconservativeearningsbecauseithasgreatergoodwillamortizationexpense.SmileWhitedepreciatesitsproperty,plantandequipmentusinganaccelerateddepreciationmethod.Thisresultsinrecognitionofdepreciationexpensesoonerandalsoimpliesthatitsincomeismoreconservativelystated.SmileWhitesbaddebtallowanceisgreaterasapercentageofreceivables.SmileWhiteisrecognizinggreaterbad-debtexpensethanQuickBrush.Ifactualcollectionexperiencewillbecomparable,thenSmileWhitehasthemoreconservativerecognitionpolicy.2.a.=NetprofitmarginTotalassetturnoverAssets/equityb.c.g=ROEPlowback3.a.CFfromoperatingactivities=$260$85$12$35=$128b.CFfrominvestingactivities=$8+$30$40=$18c.CFfromfinancingactivities=$32$37=$694.a.QuickBrushhashadhighersalesandearningsgrowth(pershare)thanSmileWhite.Marginsarealsohigher.ButthisdoesnotmeanthatQuickBrushisnecessarilyabetterinvestment.SmileWhitehasahigherROE,whichhasbeenstable,whileQuickBrushsROEhasbeendeclining.WecanseethesourceofthedifferenceinROEusingDuPontanalysis:
ComponentDefinitionQuickBrushSmileWhiteTaxburden(1t)Netprofits/pretaxprofits67.4%66.0%InterestburdenPretaxprofits/EBIT1.0000.955ProfitmarginEBIT/Sales8.5%6.5%AssetturnoverSales/Assets1.423.55LeverageAssets/Equity1.471.48ROENetprofits/Equity12.0%21.4%Whiletaxburden,interestburden,andleveragearesimilar,profitmarginandassetturnoverdiffer.AlthoughSmileWhitehasalowerprofitmargin,ithasafarhigherassetturnover.Sustainablegrowth=ROEPlowbackratioROEPlowbackRatioSustainableGrowthRateLudlowsEstimateofGrowthRateQuickBrush12.0%1.0012.0%30%SmileWhite21.40.347.310Ludlowhasoverestimatedthesustainablegrowthrateforbothcompanies.QuickBrushhaslittleabilitytoincreaseitssustainablegrowthplowbackalreadyequals100%.SmileWhitecouldincreaseitssustainablegrowthbyincreasingitsplowbackratio.b.QuickBrushsrecentEPSgrowthhasbeenachievedbyincreasingbookvaluepershare,notbyachievinggreaterprofitsperdollarofequity.AfirmcanincreaseEPSevenifROEisdecliningasistrueofQuickBrush.QuickBrushsbookvaluepersharehasmorethandoubledinthelasttwoyears.Bookvaluepersharecanincreaseeitherbyretainingearningsorbyissuingnewstockatamarketpricegreaterthanbookvalue.QuickBrushhasbeenretainingallearnings,buttheincreaseinthenumberofoutstandingsharesindicatesthatithasalsoissuedasubstantialamountofstock.5.a.ROE=OperatingmarginInterestburdenAssetturnoverLeverageTaxburdenROEforEastover(EO)andforSouthampton(SHC)in2013isfoundasfollows:
Profitmargin=SHC:
EO:
145/1,793=795/7,406=8.1%10.7%Interestburden=SHC:
137/145=600/795=0.940.75Assetturnover=SHC:
1,793/2,104=7,406/8,265=0.850.90Leverage=SHC:
2,104/1,167=8,265/3,864=1.802.14Taxburden=SHC:
91/137=394/600=0.660.66ROESHC:
7.8%10.2%b.ThedifferencesinthecomponentsofROEforEastoverandSouthamptonare:
ProfitmarginEOhasahighermargin.InterestburdenEOhasahigherinterestburdenbecauseitspretaxprofitsarealowerpercentageofEBIT.AssetturnoverEOismoreefficientatturningoveritsassets.LeverageEOhashigherfinancialleverage.TaxburdenNomajordifferenceherebetweenthetwocompaniesROE.EOhasahigherROEthanSHC,butthisisonlyinpartduetohighermarginsandabetterassetturnover.Greaterfinancialleveragealsoplaysapart.c.ThesustainablegrowthratecanbecalculatedasROEtimesplowbackratio.ThesustainablegrowthratesforEastoverandSouthamptonareasfollows:
ROEPlowbackRatio*SustainableGrowthRateEastover10.2%0.363.7%Southampton7.80.584.5*Plowback=(1Payoutratio)EO:
Plowback=(10.64)=0.36SHC:
Plowback=(10.42)=0.58Thesustainablegrowthratesderivedinthismannerarenotlikelytoberepresentativeoffuturegrowthbecause2013wasprobablynota“normal”year.ForEastover,earningshadnotyetrecoveredto20102011levels;
earningsretentionofonly0.36seemslowforacompanyinacapitalintensiveindustry.Southamptonsearningsfellbyover50percentin2013anditsearningsretentionwillprobablybehigherthan0.58inthefuture.Thereisadanger,therefore,inbasingaprojectionononeyearsresults,especiallyforcompaniesinacyclicalindustrysuchasforestproducts.6.a.TheformulafortheconstantgrowthdiscounteddividendmodelisForEastover:
Thiscompareswiththecurrentstockpriceof$28.Onthisbasis,itappearsthatEastoverisundervalued.b.Theformulaforthetwo-stagediscounteddividendmodelisForEastover:
g1=0.12andg2=0.08D0=1.20D1=D0(1.12)1=$1.34D2=D0(1.12)2=$1.51D3=D0(1.12)3=$1.69D4=D0(1.12)3(1.08)=$1.82Alternatively,CF0=$0;
CF1=$1.34;
CF2=$1.51;
CF3=$1.69+$60.67;
I=11;
SolveforNPV=$48.03.ThisapproachmakesEastoverappearevenmoreundervaluedthanwasthecaseusingtheconstantgrowthapproach.c.Advantagesoftheconstantgrowthmodelinclude:
(1)logical,theoreticalbasis;
(2)simpletocompute;
(3)inputscanbeestimated.Disadvantagesinclude:
(1)verysensitivetoestimatesofgrowth;
(2)gandkdifficulttoestimateaccurately;
(3)onlyvalidforgk;
(4)constantgrowthisanunrealisticassumption;
(5)assumesgrowthwillneverslowdown;
(6)dividendpayoutmustremainconstant;
(7)notapplicableforfirmsnotpayingdividends.Improvementsofferedbythetwo-stagemodelinclude:
(1)Thetwo-stagemodelism