1. Tax deductibility is a characteristic of
2. EPS dilution is a characteristic of
3. Debt cost is
4. Increased risk is a characteristic of
5. The return on equity is
6. Discuss financial ratios and their usefulness, and then talk about what to do if they don't necessarily follow the company or industry norm.
7. Give an example of a negative ratio, an undefined ratio or a zero ratio and what could make that occur. (Points: 10)
8. Which is the correct descending order of priority of rights in liquidation?
9. Discuss market efficiency and the difference between weak form efficient, semi-strong form efficient and strong form.
10. Define the "interest tax shield" and explain how it works with debt financing.
11. What is the ratio used to calculate the "interest tax shield?"
12. When will an "interest tax shield" not help a company?
13. Discuss how Scott's Miracle Grow recapitalization turned out in the down economy of '08-09. Specifically: The executives for Scott's, in the author's estimate, doubled their debt, to buy back 17 million shares of common stock, in order to ratchet up the EPS, which is a key determinant of bonuses. Since this is a closed book exam, tell me what you remember in general terms.
14. From the Scott's executives' standpoint, how did THEY do?
15. From the Scott's stockholders' standpoint, how did THEY do?
16. Beta measures an asset's relative systematic risk.
17. Give me at least two of the four pitfalls to avoid in discounted cash flow analysis.