Question

Use the following information about Company X to help answer problems 1-10. Company X went public at the start of 2016, $100M shares of stock were issued at $18.60 per share. At the end of 2016, Company X traded at $20.00 per share. During 2017, Company X issued 5 shares at $20.00 per share, thus raising $100M of capital At the end of 2017, Company X traded at $20.46 per share. A summary of Company X's 2016 and 2017 10k are presented in the tables below. Assume Company X did not sell any long term assets during the first two years of the company's operations. $ (in USD) Price per Share $ (in millions) Shares Outstanding 12/31/2017 20.46 12/31/2017 105 12/31/2016 20.00 12/31/2016 1001 12/31/2016 1,600 320 2,000 140 100 1,000 (in USD millions) Shares Issued $ Sales $ Operating Income $ Net Long Term Assets $ Net Income $ Marketable Securites $ Long Term Debt $ Inventoryl $ Interest Expense $ Dividends Paid $ Depreciation $ Current Portion Long Term Debtl $ Cashl $ Accounts Recievable $ Accounts Payable $ 12/31/2017 100 $ 1700$ 340 $ 2,340 $ 150 $ 60 $ 1,100 $ 800$ 140 $ 50 $ 260 $ 300 $ 400 $ 400 $ 400 $ 600 120 230 200 500 300 300 12/31/2017 5 Stage DuPont ROE Tax Burden Ratio Interest Burden Ratio Operating Margin Total Asset Turnover Ratio Leverage Ratio 12/31/2016 0.7000 0.6250 0.2000l 0.4571 1.75001 It is recommended you carefully organize an income statement and balance sheet when attempting these problems. Remember to make sure your balance sheet balances (TA=TL+EOY SE).

Answer 1

Answer:-

1) For the year 2016

ROE = NI / EOY SE
= $ 140 / EOY SE
End of year shareholders equity = Ending share price x Number of shares outstanding
= $ 20 x 100
= $ 2000
ROE = $ 140 / $ 2000 = 0.07 = 7 %
Therefore the correct Option is c.

2) For the year 2016

Effective tax rate

Operating income (EBIT) = $ 320
Interest expense = $ 120
EBT = $ 320 - $ 120 = $ 200
Net income or PAT = $ 140 (Given)
Tax = $ 60  
Effective tax rate = $ 60 / $ 200 = 0.30 = 30 %

Therefore the correct Option is d.

3) For the year 2016

EBITDA = Operating income( EBIT) + Depreciation + Amortization
= $ 320 + $ 230
EBITDA = $ 550
The closest option is $ 520
Therefore the correct Option is d.

4) For the year 2016

P/S ratio = Market price per share / Sales per share
Sales per share = $ 1600 / 100 m = $ 16
P/S ratio = $ 20 / $ 16
= 1.25

Therefore the correct Option is e.

5) For the year 2017

Market cap = Price per share x Number of shares outstanding
Market cap = $ 20.46 x 105 million
= 2148 million.

Therefore the correct Option is d.

6) For the year 2017

Given
Considering
Market cap = $ 2500

Market cap = Price per share x Number of shares outstanding
Price per share = Market cap /   Number of shares outstanding
Price per share (P) = $ 2500 / 105
Price per share (P) = $ 23.80
Earnings = Net income = $ 150
Earnings per share = $150 / 105 million
Earnings per share (E) = 1.4285
P/E = $ 23.80 / 1.4285
P/E = 16.66
Given P/E of S & P = 17.5

Since the P/E of company X is less than P/E of S & P, therefore it is undervalued and cheap.

Therefore the statement is False.

Note - Kindly put other questions in separate posts