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FIN 466 - Quiz 4

A sleek and modern image of finance and investment concepts, featuring DCF graphs, stock market visuals, and currency symbols, highlighting the theme of safe and cheap investing.

FIN 466 - Quiz 4: Safe and Cheap Investing

Test your knowledge on the principles of "safe and cheap" investing with this comprehensive quiz designed for finance enthusiasts and students alike. Dive deep into concepts such as financial positioning, DCF analysis, and the dynamics of wealth generation.

Key Topics Covered:

Understanding financial metrics
Evaluating book value growth
Examining shareholder value
Analyzing Starbucks case study

12 Questions3 MinutesCreated by InvestingGuru412

The basic premise of "safe and cheap" investing is that minority investors ought to adopt the valuation methods used by

Sell side Wall Street analysts

Control investors and insiders.

People that give earnings per share a primacy in the analysis.

None of the above.

A strong יִnancial position is measure by:

Relative absence of liabilities.

The quality of assets (i.e. How readily convertible into cash they are).

Cash ﬂows from operations.

All of the above.

Of the several factors involved in "safe and cheap" investing, a strong יִnancial position tends to give: (think about everything you learned about capitalization structure when answering this questions)

Lower return on equity to common stock investors.

Managements the option to be opportunistic

Signiיִcant reductions in יִnancial risk, I.e. Substantially increases the survivability of the business through business cycles.

All of the above

Using the image of Starbucks DCF analysis, what is the "leverage ratio"?

28%

4.8%

2.10x

None of the above

The above DCF analysis is done on an unadjusted EBITDA basis

True

False

Take a look at the "Going Concern, Resource Conversion" wealth generation dynamics analysis below. What is the relevant growth יִgure you would use to plug into a DCF analysis?

9.1%

22.8%

9.4%

23.1%

On a yearly basis, growth in book value per share plus dividends was highly positively correlated to share price plus dividend growth.

True

False

In a nine year period, average growth of book value per share plus dividends and average growth of share price plus dividends was highly correlated.

True

B. False

Safe and Cheap investors use the same methods of analysis that Control Investors use

True

False

What is the total book value growth (in %) for Starbuck's business since the beginning of 2009 to the end of 2017? Use the numbers on the spreadsheet to make the calculation.

78.94%

93.19%

118.8%

136.22%

What are the major "detractors" to book value growth? Answer all that apply.

Exercise of options

Share repurchases

Dividend payments

Stock compensation

Starbucks has been able to generate impressive levels of ROE over the 2009-2017 time period. It seems that post 2013, SBUX ROE has increased materially. See sheet below. What can you attribute the large increase post 2013? Answer all that may apply.

Increased proיִtability

Increased leverage

Increased "eﬃciency"

Decreased return on assets

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