Essentials Of Investments
11th Edition
ISBN: 9781260316193
Author: Bodie
Publisher: MCG
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Textbook Question
Chapter 7, Problem 5PS
Characterize each company in the previous problem as underpriced, overpriced or properly priced. (LO 7-2)
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2. Refer to the following table for the following questions.
[2 x 4
(a) Explain one reason why gross profit margin of Firm-B is lower than that of Firm-A.
(b) Suggest one possible way how Firm-B might improve its gross profit margin.
(c) Explain one reason why net profit margin of Firm-A is lower than that of Firm-B.
(d) Suggest one possible way how Firm-A might improve its net profit margin.
Firm-A
Firm-B
Gross profit margin
52%
47%
Net profit margin
29%
35%
Which of the following statements is incorrect about materiality?
O A. Materiality is a matter of relative size and importance
O B. A rule is adopted that anything under 10 percent of income is immaterial
O C. An item must make a difference or a company need not disclose it
O D. An item is material if omitting it or misstating it could influence the judgment of an informed user
19. Which of the following is not considered a disadvantage of LIFO?Select one:A. LIFO matches more recent costs against revenues providing better matching.B. LIFO may have a distorting effect on a company's balance sheet.C. LIFO does not usually approximate physical flow of inventory.D. LIFO can lead to poor buying habits to manipulate expenses.
Chapter 7 Solutions
Essentials Of Investments
Ch. 7 - Prob. 1PSCh. 7 - Consider the statement: “If we can identify a...Ch. 7 - Are the following true or false? Explain. (LO 7-5)...Ch. 7 - Here are data on two companies. The T-bill rate is...Ch. 7 - Characterize each company in the previous problem...Ch. 7 - What is the expected rate of return for a stock...Ch. 7 - Kaskin, Inc., stock has a beta of 1.2 and Quinn,...Ch. 7 - What must be the beta of a portfolio with E(rf)) =...Ch. 7 - The market price of a security is $40. Its...Ch. 7 - You arc a consultant to a large manufacturing...
Ch. 7 - Consider the following table, which gives a...Ch. 7 - Prob. 13PSCh. 7 - Prob. 14PSCh. 7 - If the simple CAPM is valid, which of the...Ch. 7 - Prob. 16PSCh. 7 - If the simple CAPM is valid, which of the...Ch. 7 - Prob. 18PSCh. 7 - Prob. 19PSCh. 7 - Prob. 20PSCh. 7 - In problem 2123 below, assume the risk-free rate...Ch. 7 - Prob. 22PSCh. 7 - In problem 2123 below, assume the risk-free rate...Ch. 7 - Two investment advisers are comparing performance....Ch. 7 - Suppose the yield on short-term government...Ch. 7 - Based on current dividend yields and expected...Ch. 7 - Consider the following data for a single index...Ch. 7 - Assume both portfolios A and B are well...Ch. 7 - Prob. 29PSCh. 7 - Prob. 30PSCh. 7 - Et
Ch. 7 - Suppose two factors are identified for the U.S....Ch. 7 - Suppose there are two independent economic...Ch. 7 - As a finance intern at Pork Products, Jennifer...Ch. 7 - Suppose the market can be described by the...Ch. 7 - Which of the following statements about the...Ch. 7 - Kay, a portfolio n1anacr at Collins Asset...Ch. 7 - Prob. 3CPCh. 7 - Jeffrey Bruner, CFA, uses the capital asset...Ch. 7 - Prob. 5CPCh. 7 - According to CAPM, the expected rate of a return...Ch. 7 - Prob. 7CPCh. 7 - Prob. 8CPCh. 7 - 9. Briefly explain whether investors should expect...Ch. 7 - Assume that both X and Y are well-diversified port...Ch. 7 - Prob. 11CPCh. 7 - 12. A zero-investment, well-diversified portfolio...Ch. 7 - 13. An investor takes as large a position as...Ch. 7 - In contrast to the capital asset pricing model,...Ch. 7 - Prob. 1WMCh. 7 - Prob. 2WMCh. 7 - Prob. 3WMCh. 7 - a. Which of the stocks would you classify as...
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- gross profit margin (gross profit/sales) is an important determinant of NOPAT. identify two factors that can cause gross profit margin to decline. is a a reduction in the gross profit margin always bad news? Explain.arrow_forwardSmall companies can use either the direct write-off method or the allowance method. True Falsearrow_forwardLike many technology companies, TechnoTools operates in an environment of decliningprices. Its reported profits will tend to be highest if it accounts for inventory using the:A. FIFO method.B. LIFO method.C. weighted average cost method.arrow_forward
- 1. What is the relevant cost to make the part? State answer in total dollars NOT per unit and as a positive number. 2. Should Ran Corporation make the part? 3. What should Ran ignore? Why? 4. What would be the impact on total Net Income if Ran corporation accepted the supplier's offer? Show a negative for a loss, positive for a gain.arrow_forward6. What of the following might result from dropping an unprofitable customer? a. Sales levels would decrease b. Future business relations could suffer c. Costs would decline d Costs could stay the same in the short-term e. All of the above bearrow_forwardMonopolists sometimes practice price discrimination to O a. get rid of surplus product. O b. decrease output. O c. out of fairness to disadvantaged groups. O d. increase profit. O e. increase deadweight loss.arrow_forward
- What is the main criticism of LIFO? A. It presents a balance sheet figure that is out-of-date. B. It artificially creates a higher income. C. It utilizes a unit cost that has no evidence of existence. D. It is often complicated to implement, especially if inventory costs change frequently.arrow_forwardts) An auditor recently asked an accounting manager to perform a LCM test on a batch of inventory. Since the manager would prefer to avoid the cost of a LCM test, what GAAP argument could she use to avoid performing the test? O The cost of the test would not outweigh the benefit of the result. O Why don't you perform the test? That's what we are paying you for. O I have no reason to believe future value has dropped below the historical cost. h O The recorded cost accurately represents the costs when the inventory was produced.arrow_forwardPlease explain the statement below thourougly with an example to illustrate the answer. "A product with a high gross profit could be an unprofitable product".arrow_forward
- A positive price-to-book ratio indicates something is wrong with a company's use of its assets. True Falsearrow_forwardBelow is the information on a project that you are evaluating for deciding on its worthiness as an investment. ABC company is considering a new investment whose data are shown below. WACC for the project under consideration Net investment in fixed assets (immediate) Required new working capital (immediate) Working capital from the end of the first year onwards as a Percentage of Sales Straight line deprec. Rate (every year end from the end of year 1} Sales revenues (starting at the end of year 1) Operating cost excluding depreciation, (starting at the end of year 1) 10% 75000 15000 25% 33.33% 75000 25000 Tax Rate Annual increase in Operating Costs each year from year 2 onwards Annual increase in Sales revenue from the end of the year 2 onwards Depreciation: Fixed assets to be fully depreciated in books using the straight line method over 4 years to zero Salvage value of the fixed assets at the end of the project life 35% 6% 9750arrow_forwardWhich of the following is not a correct definition of the breakeven point? A.the point where total profits equals total fixed expenses B.the point where total profit equals zero C.the point where total contribution margin equals total fixed expenses D.the point where total sales equals total expensesarrow_forward
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