When analyzing a company that prepares its financial statements according to U.S. GAA

An equity manager conducted a stock screen on 5,000 U.S. stocks that comprise her investment universe. The results of the screen are presented in the table below.

If all the criteria were completely independent of each other, the number of stocks meeting all four criteria would be closest to:

A.293.

B.371.

C.540.

An equity analyst developing a screen tool to exclude potentially weak companies would most likely accept companies with:

A. Negative net income.

B. A debt-to equity ratio above some cutoff point.

C. A debt-to-total assets ratio below some cutoff point.

An equity analyst is forecasting the next year’s net profit margin of a heavy equipment manufacturing firm, by using the average net profit margin over the past three years. In making his profit projection, he is concerned about the following three items:

·The company suffered losses from discontinued operations in each of the past three years.

·The most recent year’s tax rate was only one half the prior two years’ rate as a result of a fiscal stimulus.

·The company experienced gains on the sale of investments in each of the past three years.

Which of the following statements about the preparation of the forecast is most accurate? The analyst would:

A. use the most recent tax rate because that is the best predictor of future tax rates.

B. exclude the gains on the sale from investments because the company is a manufacturing firm.

C. include the discontinued operations because they appear to be an on-going feature for this company.

Kim Lee, CFA, is trying to forecast net income for Robinson’s Ltd, a chain of retail furniture outlets. He has prepared the following common sized data from their recent annual report and has estimated sales for 2013 using a forecast model his firm developed for consumer goods.

The capital structure of the company has not changed. The projected net income (in $ millions) for 2008 is closest to:

A.110.1.

B.162.8.

C.167.4.

In adjusting financial statements for comparability under IFRS and U.S.GAAP, an analyst would be most likely to:

A. Add goodwill to stockholders’ equity.

B. Eliminate all intangible assets from the balance sheet.

C. Adjust the IFRS statements from LIFO inventory costing to FIFO method.

Which of the following provides the mostprotection to a bondholder?

A. Call protection.

B. Refunding protection.

C. Sinking fund protection.

Which of these embedded options most likelybenefits the investor?

A. The floor in a floating-rate security

B. An accelerated sinking fund provision

C. The call option in a fixed-rate security

Which embedded option is most beneficial to a bond issuer?

A. A conversion privilege.

B. A floor on a floating rate bond.

C. An accelerated sinking fund provision.

An investor sells a bond at the quoted price of

$98.00. In addition he receives accrued interest of $4.40. The clean price of the bond is:

A. Par value plus accrued interest.

B. accrued interest plus agreed upon bond price.

C. agreed upon bond price excluding accrued interest.

An analyst reviews a corporate bond indenture that contains these two covenants:

1) The borrower will pay interest semi-annually

and principal at maturity.

2) The borrower will not incur additional debt if its debt/capital ratio is more than 50%.

What types of covenants are these?

A. Both are affirmative covenants.

B. Covenant 1 is negative and Covenant 2 is affirmative.

C. Covenant 2 is negative and Covenant 1 is affirmative.