A. How many companies are in each industry?

1. Industry Comparison On the Market Insight homepage, follow the “Industry” link at the top of the page to the industry page. You can use the drop down menu to select different industries. Answer the following questions for these industries: Airlines, Automobiles, Biotechnology, Computers (Software & Services), Homebuilding, Manufacturing (Diversified), Restaurants, Retail (General Merchandise), and Telecommunications (Cellular/Wireless).

a. How many companies are in each industry?

b. What are the total sales for each industry?

c. Do the industries with the largest total sales have the most companies in the industry? What does this tell you about competition in the various industries?

Chapter 02

1. Marginal and Average Tax Rates Download the annual income statements for Big Rock Brewery Ltd. (BEERF). Looking back at Table 2.7, what is the marginal income tax rate for Big Rock? Using the total income tax and the pretax income numbers calculate the tax rate for Big Rock. Is this number greater or less than the marginal rate? Why?

2. Net Working Capital Find the annual balance sheets for Air Canada (ACNAF) and CHC Helicopter Corp. (FLYA). Calculate the net working capital for each company. Is Air Canada’s net working capital negative? If so, does this indicate potential financial difficulty for the company? What about CHC Helicopter?

3. Per Share Earnings and Dividends Find the annual income statements for Abitibi Consolidated Inc. (ABY), Precision Drilling Corp. (PDS), and Canwest Global Communications (CWG). What are the earnings per share (EPS Basic from operations) for each of these companies? What are the dividends per share for each company? Why do these companies pay out a different portion of income in the form of dividends?

4. Cash Flow Identity Download the annual balance sheets and income statements for Domtar Inc. (DTC). Using the most recent year, calculate the cash flow identity for Domtar Inc. Explain your answer.

Chapter 03

1. Equity Multiplier Use the balance sheets for Canadian Pacific Railway Ltd. (CP), Biovail Corp. (BVF), Barrick Gold Corp. (ABX), and Alcan Inc. (AL) to calculate the equity multiplier for each company over the most recent two years. Comment on any similarities or differences between the companies and explain how these might affect the equity multiplier.

2. Inventory Turnover Use the financial statements for IPSCO Inc. (IPS) and Premium Brands Inc. (FLCHF) to calculate the inventory turnover for each company over the past three years. Is there a difference in inventory turnover between the two companies? Is there a reason the inventory turnover is lower for IPSCO? What does this tell you about comparing ratios across industries?

3. SIC Codes Find the SIC codes for Alliance Atlantis Communications (AACB) and Lions Gate Entertainment Corp. (LGF) on each company’s homepage. What is the SIC code for each of these companies? What does the business description say for each company? Are these companies comparable? What does this tell you about comparing ratios for companies based on SIC codes?

4. Calculating the Du Pont Identity Find the annual income statements and balance sheets for BCE Inc. (BCE) and Big Rock Brewery Ltd. (BEERF). Calculate the Du Pont identity for each company for the most recent years. Comment on the changes in each component of the Du Pont identity for each company over this period and compare the components between the two companies. Are the results what you expected? Why or why not?

5. Ratio Analysis Look under “Valuation” and download the “Profitability” spreadsheet for Air Canada (ACNAF), Southwest Airlines (LUV), and Continental Airlines (CAL). Find the ROA (Net ROA), ROE, PE ratio (P/E-high and P/E-low), and the market-to-book ratio (Price/Book-high and Price/Book-low) for each company. Since stock prices change daily, PE and market-to-book ratios are often reported as the highest and lowest values over the year, as is done in this instance. Look at these ratios for all three companies over the past five years. Do you notice any trends in these ratios? Which company appears to be operating at a more efficient level based on these four ratios? If you were going to invest in an airline, which one (if any) of these companies would you choose based on this information? Why?

Chapter 04

1. Calculating EFN Find the income statements and balance sheets for Magna International (MGA). Assuming sales grow by 10 percent, what is the EFN for Magna next year? Assume non-operating income/expense and special items will be zero next year. Assets, costs, and current liabilities are proportional to sales. Long-term debt and equity are not. Magna will have the same tax rate next year as it does in the current year.

2. Internal and Sustainable Growth Rates Look up the financial statements for Potash Corporation of Saskatchewan Inc. (POT) and CanWest Global Communications (CWG). For each company, calculate the internal growth rate and sustainable growth rate over the past two years. Are the growth rates the same for each company for the two years? Why or why not?

Chapter 05

1. Calculating Future Values Find the monthly adjusted prices for Brascan Corp. (BNN). If the stock appreciates 11 percent per year, what stock price do you expect to see in five years? In 10 years? Ignore dividends in your calculations.

2. Calculating Interest Rates Find the monthly adjusted prices for Domtar Inc. (DTC). What is the average annual return over the past four years?

3. Calculating the Number of Periods Find the monthly adjusted stock prices for Petro Canada (PCZ). You find an analyst who projects the stock price will increase 12 percent per year for the foreseeable future. Based on the most recent monthly stock price, if the projection holds true, when will the stock price reach $50? When will it reach $75?

Chapter 07

1. Bond Rating Look up Biomira Inc. (BIOM), Nortel Networks Corp. (NT), Alcan Inc. (AL), and Placer Dome Inc. (PDG). For each company, follow the “Financial Highlights” link and find the bond rating. Which companies have an investment grade rating? Which companies are rated below investment grade? Are any unrated? When you find the credit rating for one of the companies, click on the “S&P Issuer Credit Rating” link. What are the three considerations listed that Standard & Poor’s uses to issue a credit rating?

Chapter 08

1. Calculating Required Return A drawback of the dividend growth model is the need to estimate the growth rate of dividends. One way to estimate this growth rate is to use the sustainable growth rate. Look back at Chapter 4 and find the formula for the sustainable growth rate. Using the annual income statement and balance sheet, calculate the sustainable growth rate for MDS Inc. (MDZ). Find the most recent closing monthly stock price under the “Mthly. Adj. Prices” link. Using the growth rate you calculated, the most recent dividend per share, and the most recent stock price, calculate the required return for MDS shareholders. Does this number make sense? Why or why not?

2. Calculating Growth Rates Coca-Cola (KO) is a dividend-paying company. Recently, dividends for Coca-Cola have increased at about 5.5 percent per year. Find the most recent closing monthly stock price under the “Mthly. Adj. Prices” link. Locate the most recent annual dividend for KO and calculate the dividend yield. Using your answer and the 5.5 percent dividend growth rate, what is the required return for shareholders? Suppose instead that you know that the required return is 13 percent. What price should Coca-Cola stock sell for now? What if the required return is 15 percent?

Chapter 12

1. Calculating Yields Download the historical stock prices for Suncor Energy Inc. (SU) under the “Mthly. Adj. Prices” link. Find the closing stock price for the beginning and end of the prior two years. Now use the annual financial statements to find the dividend for each of these years. What was the capital gains yield and dividend yield for Suncor stock for each of these years? Now calculate the capital gains yield and dividend for Nexen Inc. (NXY). How do the returns for these two companies compare?

2. Calculating Average Returns Download the Monthly Adjusted Prices for ATI Technologies Inc. (ATYT). What is the return on the stock over the past 12 months? Now use the 1 Month Total Return and calculate the average monthly return. Is this one-twelfth of the annual return you calculated? Why or why not? What is the monthly standard deviation of ATI’s stock over the past year?

Chapter 13

1. Using CAPM You can find estimates of beta for each company under the “Mthly. Val. Data” link. Locate the beta for Nortel Networks Corp. (NT) and Imperial Oil Ltd. (IMO). How has the beta for each of these companies changed over the period reported? Using the historical risk-free rate and market risk premium found in the chapter, calculate the expected return for each company based on the most recent beta. Is the expected return for each company what you would expect? Why or why not?

Chapter 16

1. Visit the “Student Centre” at the Online Learning Centre for this textbook (www.mcgrawhill.ca/college/ross). By using the passcode that came with your textbook, access the information in the S&P Market Insight tool. Find the annual balance sheets for Corel Corp. (CORL) and Imperial Oil Ltd. (IMO). For each company, calculate the long-term debt-to-equity ratio for the two most recent years. Why would these companies use such different capital structures?

Chapter 17

1. Dividend Payouts Use the annual financial statements for Enbridge Inc. (ENB), Celestica Inc. (CLS), and the Nortel Networks Corp. (NT) to find the dividend payout ratio for each company for the last three years. Why would these companies pay out a different percentage of income as dividends? Is there anything unusual about the dividends paid by Nortel? How is this possible?

Chapter 18

1. Visit the “Student Centre” at the Online Learning Centre for this textbook (www.mcgrawhill.ca/college/ross). Using the pass code that came with your textbook, access the information in the S&P Market Insight tool. Find the most recent financial statements for Alcan Inc. and Biomira Inc. Calculate the cash and operating cycles for each company for the most recent year. Are the numbers similar for the companies? Why or why not?