Question & Answer

One of the more closely watched ratios by investors is the price/earnings (P/E) ratio. By dividing price per share by earnings per share, analysts get insight into the value the market attaches to a company’s earnings. More specifically, a high P/E ratio (in comparison to companies in the same industry) may suggest the stock is overpriced. Also, there is some evidence that companies with low P/E ratios are underpriced and tend to outperform the market. However, the ratio can be misleading. P/E ratios are sometimes misleading because the E (earnings) is subject to a number of assumptions and estimates that could result in overstated earnings and a lower P/E. Some analysts conduct “revenue analysis” to evaluate the quality of an earnings number. Revenues are less subject to management estimates and all earnings must begin with revenues. These analysts also compute the price-to-sales ratio (PSR 5 price per share 4 sales per share) to assess whether a company is performing well compared to similar companies. If a company has a price-to-sales ratio significantly higher than its competitors, investors may be betting on a stock that has yet to prove itself. [Source: Janice Revell, “Beyond P/E,” Fortune (May 28, 2001), p. 174.] Instructions (a) Identify some of the estimates or assumptions that could result in overstated earnings. (b) Compute the P/E ratio and the PSR for Tootsie Roll and Hershey for 2011. (c) Use these data to compare the quality of each company’s earnings.

Describe the general characteristics of a futures contract. How does a clearinghouse facilitate the trading of financial futures contracts? (LO1)

How might fluctuations in aggregate demand lead to changes in output even under the assumption of continuous market clearing?

Data for Brecker Inc. are presented in E23-13. Instructions Prepare a statement of cash flows using the indirect method.

Why do we get less consumer surplus from goods where our demand is relatively elastic?

Assume that national income is initially at Y2 in Figure 19.19. Describe the process whereby equilibrium in both markets will be achieved.

Why are the temperatures much higher in plasma arc welding than in other AW processes?

Consider an extruder in which the barrel diameter = 4.5 in and length = 11 ft. The extruder screw rotates at 60 rev/min; it has channel depth = 0.35 in and flight angle = 20°. The plastic melt has a shear viscosity = 125 x 10-4 lb-sec/in2 . Determine: (a) Qmax and pmax; (b) the shape factor Ks for a circular die opening in which Dd = 0.312 in and Ld = 0.75 in; and (c) the values of Q and p at the operating point

Why must a production line be paced at a rate higher than that required to satisfy the demand for the product?

Homestake Mining Company is a 120-year-old international gold mining company with substantial gold mining operations and exploration in the United States, Canada, and Australia. At year-end, Homestake reported the following items related to income taxes (thousands of dollars). Total current taxes $ 26,349 Total deferred taxes (39,436) Total income and mining taxes (the provision for taxes per its income statement) (13,087) Deferred tax liabilities $303,050 Deferred tax assets, net of valuation allowance of $207,175 95,275 Net deferred tax liability $207,775 Note 6: The classifi cation of deferred tax assets and liabilities is based on the related asset or liability creating the deferred tax. Deferred taxes not related to a specifi c asset or liability are classifi ed based on the estimated period of reversal. Tax loss carryforwards (U.S., Canada, Australia, and Chile) $71,151 Tax credit carryforwards $12,007 Instructions (a) What is the significance of Homestake’s disclosure of “Current taxes” of $26,349 and “Deferred taxes” of $(39,436)? (b) Explain the concept behind Homestake’s disclosure of gross deferred tax liabilities (future taxable amounts) and gross deferred tax assets (future deductible amounts). (c) Homestake reported tax loss carryforwards of $71,151 and tax credit carryforwards of $12,007. How do the carryback and carryforward provisions affect the reporting of deferred tax assets and deferred tax liabilities?

A series of cold rolling operations are to be used to reduce the thickness of a plate from 50 mm down to 25 mm in a reversing two-high mill. Roll diameter = 700 mm and coefficient of friction between rolls and work = 0.15. The specification is that the draft is to be equal on each pass. Determine (a) minimum number of passes required, and (b) draft for each pass?

How are a polymer's properties affected when it takes on a crystalline structure?

What is a rivet?

A fiberglass composite is composed of a matrix of vinyl ester and reinforcing fibers of E-glass. The volume fraction of E-glass is 35%. The remainder is vinyl ester. The density of the vinyl ester is 0.882 g/cm3 , and its modulus of elasticity is 3.60 GPa. The density of E-glass is 2.60 g/cm3 , and its modulus of elasticity is 76.0 GPa. A section of composite 1.00 cm by 50.00 cm by 200.00 cm is fabricated with the E-glass fibers running longitudinal along the 200-cm direction. Assume there are no voids in the composite. Determine the (a) mass of vinyl ester in the section, (b) mass of Eglass fibers in the section, and (c) the density of the composite

On January 1, 2014, Gottlieb Corporation issued $4,000,000 of 10-year, 8% convertible debentures at 102. Interest is to be paid semiannually on June 30 and December 31. Each $1,000 debenture can be converted into eight shares of Gottlieb Corporation $100 par value common stock after December 31, 2015. On January 1, 2016, $400,000 of debentures are converted into common stock, which is then selling at $110. An additional $400,000 of debentures are converted on March 31, 2016. The market price of the common stock is then $115. Accrued interest at March 31 will be paid on the next interest date. Bond premium is amortized on a straight-line basis. Instructions Make the necessary journal entries for: (a) December 31, 2015. (c) March 31, 2016. (b) January 1, 2016. (d) June 30, 2016. Record the conversions using the book value method.

Describe inside information as applied to the trading of stocks. Why is it illegal to trade based on inside information? Describe the evidence that suggests some investors use inside information. (LO4)

Using the facts from the previous problem, how would your answer change if instead, Duff adopted the cash method of accounting to allow him to better control the timing of his cash receipts and disbursements?

When tensions rise or war erupts in the Middle East, bond prices in many countries tend to decline. What is the link between problems in the Middle East and bond prices? Would you expect bond prices to decline more in Japan or in the United Kingdom as a result of the crisis? (The answer is tied to how interest rates may change in those countries.) Explain. (LO2)

Why might you expect the interest rate movements of various industrialized countries to be more highly correlated in recent years than they were in earlier years? (LO2)

Consider a turning operation performed on steel whose hardness = 225 HB at a speed = 3.0 m/s, feed = 0.25 mm, and depth = 4.0 mm. Using values of thermal properties found in the tables and definitions of Section 4.1 and the appropriate specific energy value from Table 21.2, compute an estimate of cutting temperature using the Cook equation. Assume ambient temperature = 20°C.

What is a hybrid microsensor

Georgette has identified a 1983 court case that appears to answer her research question.  What must she do to determine if the case still represents “current” law?

The positioning table for a component insertion machine uses a stepping motor and leadscrew mechanism. The design specifications require a table speed of 40 in/min and an accuracy = 0.0008 in. The pitch of the leadscrew = 0.2 in, and the gear ratio = 2:1 (2 turns of the motor for each turn of the leadscrew). The mechanical errors in the motor, gear box, leadscrew, and table connection are characterized by a normal distribution with standard deviation = 0.0001 in. Determine (a) the minimum number of step angles in the stepping motor, and (b) the frequency of the pulse train required to drive the table at the desired maximum speed.

Assume that the Fed adopts an inflation-targeting strategy. Describe how the Fed’s monetary policy would be affected by an abrupt 15 percent rise in oil prices in response to an oil shortage. Do you think an inflation targeting strategy would be more or less effective in this situation than a strategy of balancing inflation concerns with unemployment concerns? Explain. (LO3)

Will a general item of expenditure such as food or clothing have a price-elastic or inelastic demand? (Consider both the determinants we have considered so far.)