Answer 42 5/2018 Bookshelf Online: 2018 CFA Program Level I Volume 5 Equity and

Question

Answer 42

5/2018 Bookshelf Online: 2018 CFA Program Level I Volume 5 Equity and Fixed Income PRINTED BY: akazemi@ric.edu. Printing is for personal, private use only. No part of this book ma reproduced or transmitted without publisher's prior permission. Violators will be prosecuted. 42. Based on Exhibits 5-7, in comparison to Company X, Company Y has a higher: - A. debt/capital ratio. B. debt/EBITDA ratio C. free cash flow after dividends/debt ratio. 43. Based on Exhibits 5-7, in comparison to Company Y, Company X has greater: A. leverage. B. interest coverage. C. operating profit margin. 44. Credit yield spreads most likely widen in response to: A. high demand for bonds.

Explanation / Answer

Company X Company Y a) Debt/capital ratio 16.69 1.06 21.7/1.3 68.1/64 b) Debt/EBITDA ratio 10.33 3.98 Debt/Operating income+depreciation 21.7/(1.1+1) 68.1/(13.3+3.8) c) Free cash flow afteer dividend/debt ratio 2.13 7.5 (3.3-1-.3)/.94 (14-4-6.1)/.52 0.94 0.52 Debt ratio 21.7/23 68.1/132.1 Free cash flow Net cash flow from operating activities-Capital exp-dividend Company Y has higher free cash flow after dividend/debt ratio than company X Option C is coorect

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