FUNDAMENTAL OF CORPORATE FINANCE
4th Edition
ISBN: 9781323942925
Author: Berk
Publisher: PEARSON
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Textbook Question
Chapter 10, Problem 20P
Consider the following data for the airline industry for December 2015 (EV= enterprise value, Book = equity book value). Discuss the potential challenges of using multiples to value an airline.
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1) Analyze the time-series of each company’s sales growth (i.e., growth in operating revenue). If you average sales growth over the 2015 through 2019 period, which airline is experiencing greater growth pre-COVID19?a) DELTA
b) ALLEGIANT
2) Analyze each company’s gross margin (operating income, or EBIT, divided by operating revenue). Which company has better historical pre-COVID19 gross margins?a) DELTAb) ALLEGIANT
3) Understanding that depreciation expense is largely dependent on management decision making, recalculate gross margin but add depreciation and amortization back to EBIT; in other words, calculate gross margin using EBITDA. Does examining gross margin using EBITDA change your answer to question #2?
a) Yes b) No
4) With respect to leverage, company _______ is more highly levered (i.e., has more debt) than company _______.a) DELTA, ALLEGIANTb) ALLEGIANT, DELTA
5) Compute ROE as NI ÷ (Average Owners’ Equity). Delta’s 2019 ROE is approximately _____ and Allegiant’s 2019 ROE is…
Chapter 10 Solutions
FUNDAMENTAL OF CORPORATE FINANCE
Ch. 10 - Prob. 1CCCh. 10 - Why do we ignore interest payments on the firm's...Ch. 10 - Prob. 3CCCh. 10 - What implicit assumptions do we make when valuing...Ch. 10 - State the efficient markets hypothesis.Ch. 10 - Prob. 6CCCh. 10 - Prob. 7CCCh. 10 - Prob. 8CCCh. 10 - What are the advantages of valuing a stock based...Ch. 10 - Prob. 2CT
Ch. 10 - Prob. 3CTCh. 10 - Prob. 4CTCh. 10 - Prob. 5CTCh. 10 - Prob. 6CTCh. 10 - Prob. 7CTCh. 10 - Prob. 8CTCh. 10 - Prob. 9CTCh. 10 - Prob. 1CQCh. 10 - Compute the IRR and payback period of each...Ch. 10 - Estimate Nanovo's equity cost of capital. Use it...Ch. 10 - Should Nanovo expand the plant? If so, which...Ch. 10 - Prob. 5CQCh. 10 - Suppose Nanovo announces the major expansion and...Ch. 10 - DATA CASE As a new junior analyst for a large...Ch. 10 - Prob. 2DCCh. 10 - Prob. 3DCCh. 10 - Prob. 4DCCh. 10 - Prob. 5DCCh. 10 - To calculate an estimate of JNJ price based on a...Ch. 10 - Compare the stock prices produced by the two...Ch. 10 - Prob. 8DCCh. 10 - Prob. 1PCh. 10 - Prob. 2PCh. 10 - Prob. 3PCh. 10 - Prob. 4PCh. 10 - Prob. 5PCh. 10 - Prob. 6PCh. 10 - Prob. 7PCh. 10 - Prob. 8PCh. 10 - Consider the valuation of Nike given in Example...Ch. 10 - 10. You are evaluating the stock price Of Kroger,...Ch. 10 - Prob. 11PCh. 10 - Prob. 12PCh. 10 - Prob. 13PCh. 10 - Prob. 14PCh. 10 - SLYMN Enterprises has a P/E ratio of 12 and a...Ch. 10 - Prob. 16PCh. 10 - Prob. 17PCh. 10 - Prob. 18PCh. 10 - Prob. 19PCh. 10 - Consider the following data for the airline...Ch. 10 - Prob. 21PCh. 10 - Summit Systems has an equity cost of capital of...Ch. 10 - Assume that Cola Co. has a share price of $43. The...Ch. 10 - Roybus, Inc., a manufacturer of flash memory, just...Ch. 10 - Prob. 25PCh. 10 - 26. You have a $100,000 portfolio made up of 15...Ch. 10 - Prob. 27P
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