Kaplan考试和QBank二级（考友版）：V1阶段考试2 AM（题目+解析）

CFALevelII

Questions#1-6of60

UsethefollowinginformationtoanswerQuestions1through6.

CharlesConnor,CFA,isaportfoliomanageratAppleInvestments,LLC.AppleisaU.S.-basedfirmofferingawide

spectrumofinvestmentproductsandservices.ConnormanagestheBiogeneFund,adomesticequityfundspecializingin

smallcapitalizationgrowthstocks.TheBiogeneFundgenerallytakessignificantpositionsinstocks,commonlyowning

4.5–5%oftheoutstandingshares.Thefund'sprospectuslimitspositionstoamaximumof5%ofthesharesoutstanding.

TheperformanceoftheBiogeneFundhasbeensuperioroverthelastfewyears,butforthelasttwoquartersthefundhas

underperformeditsbenchmarkbyawidemargin.Connorisdeterminedtoimprovehisperformancenumbersgoing

forward.

TheBiogeneprospectusallowsConnortousederivativeinstrumentsinhisinvestmentstrategy.Connorfrequentlyuses

optionstohedgehisfund'sexposureashebuildsorliquidatespositionsinhisportfoliosinceBiogene'slargepositions

oftentakeseveralweekstoacquire.Forexample,whenheidentifiesastocktobuy,heoftenbuyscalloptionstogain

exposuretothestock.Ashebuysthestock,hesellsofftheoptionsorallowsthemtoexpire.Connorhasnoticedthatthe

increasedvolumeinthecalloptionsoftendrivesthestockpricehigherforafewdays.Hehasseenasimilarnegative

effectonstockpriceswhenhebuyslargeamountsofputoptions.

Theendofthequarterisjustafewdaysaway,andConnorisconsideringthreetransactions:

TransactionA:BuyingPutOptionsonStockA

TheBiogeneFundowns4.9%oftheoutstandingstockofCompanyA,butConnorbelievesthestockisfullyvaluedand

planstoselltheentireposition.Heanticipatesthatitwilltakeapproximately45tradingdaystoliquidatetheentire

BiogenepositioninStockA.

TransactionB:BuyingCallOptionsonStockB

TheBiogeneFundowns5%oftheoutstandingstockofCompanyB.Connorbelievesthereissignificantappreciation

potentialforStockB,butthestockpricehasdroppedinrecentweeks.Connorishopingthatbytakinganoptionposition,

therewillbeacarryovereffectonthestockpricebeforequarterend.

TransactionC:SellingtheBiogeneFund'sEntirePositioninStockC

ConnorbelievesthatStockCisstillattractive,butheissellingthestockwiththeideathathewillrepurchasetheposition

nextmonth.ThemotivationforthetransactionistocaptureacapitallossthatwillreducetheBiogeneFund'staxexpense

fortheyear.

Applehasaninvestmentbankingdepartmentthatisactiveininitialpublicofferings(IPOs).GeorgeArnold,CFA,isthe

seniormanageroftheIPOdepartment.ArnoldapproachedConnoraboutStockD,anewIPObeingofferedbyApple.

StockDwillopentradingintwodays.ApplehadofferedtheIPOtoallofitsclients,butapproximately20%ofthedeal

remainedunsold.Havingreadtheprospectus,ConnorthinksStockDwouldbeagoodfitforhisfund,andheexpects

StockDtoimprovehisperformanceinboththeshortandlongterm.Connorisnotawareofanyinformationrelatedto

StockDbeyondthatprovidedintheprospectus.Connoraskedtopurchase5%oftheIPO,butArnoldlimitedBiogene's

shareto2%,explaining:

"WithBiogene'sreputation,anyparticipationwillmaketheunsoldshareshighlymarketable.Further,wemay

needBiogenetoacquiremoreStockDsharesatalaterdateifthepricedoesnotholdup."

Connorisdisappointedinbeinglimitedto2%oftheofferingandsuggeststoArnoldinanemailthat,giventhe2%

limitation,BiogenewillnotparticipateintheIPO.Arnoldrespondedafewhourslaterwiththefollowingmessage:

"IhavejustspokenwithMs.D,theCFOofStockD.Althoughitistoolatetoaltertheprospectus,

managementbelievestheywillreceivealargecontractfromaforeigngovernmentthatwillboostnextyear's

salesby20%ormore.Iurgeyoutoacceptthe2%—youwon'tbesorry!"

AfterreviewingArnold'semail,Connoragreestothe2%offer.

Question#1of60

QuestionID:1212784

ByexecutingTransactionA,Connoris:

A)violatingtheStandardsbecausehisoptiontradingcanbereasonablyexpectedto

affectthepriceofStockA.

B)violatingtheStandardsbecausetheoptionpositioncreatesaprofitopportunityin

conflictwithBiogene’sclients.

C)notviolatingtheStandards.

Question#2of60

QuestionID:1212785

ByexecutingTransactionB,Connoris:

A)violatingtheStandardsbecausehisoptiontradingcanbereasonablyexpectedto

affecthisquarterlyperformance.

B)notviolatingtheStandardsbecausetheoptionpositioncreatesaprofitopportunity

consistentwithBiogene’sclients’interests.

C)notviolatingtheStandardsbecausehebelievesthereissignificantappreciation

potentialinStockB.

Question#3of60

QuestionID:1212786

ByexecutingTransactionC,Connoris:

A)violatingtheStandardsbyexecutingatransactionfortaxreasonsonly.

B)violatingtheStandardsbyexecutingatransactionthatprovidestaxbenefitstothe

BiogeneFund.

C)notviolatingtheStandards.

Question#4of60

QuestionID:1212787

ByofferingBiogenetheopportunitytoparticipateintheIPOofStockD,AppleInvestmentshasviolatedCFAInstitute

Standardsrelatingto:

A)priorityoftransactionsbutnotindependenceandobjectivity.

B)independenceandobjectivitybutnotpriorityoftransactions.

C)neitherpriorityoftransactionsnorindependenceandobjectivity.

Question#5of60

QuestionID:1212788

Arnold'sargumentsforlimitingBiogene'sshareto2%suggestthatApple:

A)mayengageinaliquiditypumpingstrategythatwouldbeacceptablegiventhat

Biogeneisarelatedentity.

B)mayengageintransaction-basedmanipulationofStockDinthefuture,inviolation

ofStandardsrelatingtomarketmanipulation.

C)isviolatingStandardsrelatedtopriorityoftransactionsbyofferingtheIPOto

Biogenebeforeitisfullysubscribed.

Question#6of60

QuestionID:1212789

BaseduponConnor'sacceptanceofthe2%limitationafterreceivingtheemailfromArnold:

A)ConnorhasviolatedStandardsrelatingtomaterialnonpublicinformation,and

ArnoldhasviolatedStandardsrelatingtopreservationofconfidentiality.

B)ConnorhasnotviolatedStandardsrelatingtomaterialnonpublicinformation,but

ArnoldhasviolatedStandardsrelatingtopreservationofconfidentiality.

C)ConnorhasnotviolatedStandardsrelatingtomaterialnonpublicinformation,but

ArnoldhasviolatedStandardsrelatingtopreservationofconfidentialityand

materialnonpublicinformation.

Questions#7-12of60

UsethefollowinginformationtoanswerQuestions7through12.

AlfredFarias,fixedincomeanalystforBNF,Inc.,isanalyzingtheeconomicprospectsofProcken,Krosse,Weira,and

Toban,fourcountriesinthesameregion.Hecollectsthefollowingeconomicanddemographicstatisticsforthecountries:

ProckenKrosse

Weira

Toban

CurrentrealGDP(in$billions)

$250.00$250.00$4,500.00$4,800.00

$306.00$315.00$5,262.00$5,778.00

ProjectedrealGDPin5years(in$billions)basedonpotentialGDPgrowth

rate

Long-termgrowthrateofcapital

Currentcapitalbase($billions)

Imports(in$billions)

4.0%

4.2%

3.2%

3.8%

$782.9$699.2$18,750

$19,750

$30.00$60.00$1,500.00$900.00

$32.00$80.00$1,000.00$900.00

Exports(in$billions)

Population(in$millions)

20.4

1.9%

32.5%

4.0%

20.0

2.9%

35.0%

4.7%

101.0

0.4%

100.0

0.8%

Laborgrowthrate

Costofcapitalrelativetototalfactorcost

Averagerealannualappreciationinequities(pastfiveyears)

25.0%

4.5%

22.5%

3.8%

AGDPpercapitabelow$25,000isconsideredadevelopingcountry,andaGDPpercapitagreaterthan$25,000is

consideredadevelopedcountry.

FariasconcludesthatWeiraandTobanhavereachedsteady-stategrowth.

Inthelatestroundoftradenegotiations,representativesfromeachcountrydiscussedtheireffortstofostertheircountries'

economicdevelopmentandbenefitfromthegrowthofworldtrade.

Procken'sRepresentative:"Wearewaryofthepotentialforlossofdomesticindustriesifweremovetradebarriers.Given

thestateofoureconomy,I'mnotcertainthatwecanlowerourtradebarriersanyfurther."

Krosse'sRepresentative:"WeinKrossearenotinvestingenoughininfrastructureandeducationtoincreasethelevelof

productivityandtechnologyinoureconomy.Wealsoneedforeigndirectinvestmentandhencewewelcomeforeign

investors."

Weira'sRepresentative:"Weareconcernedaboutmycountry'snegativetradebalance.Weiraneedsmoreexportsto

sustainourgrowth."

Toban'sRepresentative:"WeseemtobeatapointinTobanwherethegrowthrateofmycountry'slaborforcemaybe

insufficienttosupportourGDPgrowthrate."

Question#7of60

QuestionID:1212791

Whichcountryismostlikelytobenefitfromcapitaldeepening?

A)Weira.

B)Krosse.

C)Procken.

Question#8of60

QuestionID:1212792

Forthisquestiononly,assumethatthepopulationgrowthrateisthesameforKrosseandProcken.Apossiblecausefor

thedifferenceingrowthrateoflaboristhatrelativetoProcken,Krossehas:

A)stricterimmigrationpolicies.

B)alowerlaborparticipationrate.

C)experiencedanincreaseinaveragehoursworked.

Question#9of60

QuestionID:1212793

Thelong-termgrowthrateoftechnology(TFP)forTobanisclosestto:

A)0.4%.

B)2.1%.

C)2.3%.

Question#10of60

QuestionID:1212794

Goingforward,whichcountryismostlikelytoexperiencelowerstockmarketappreciationthanthatexperiencedoverthe

pastfiveyears?

A)Weira.

B)Toban.

C)Procken.

Question#11of60

QuestionID:1212795

TherentalpriceofcapitalinWeiraisclosestto:

A)6%.

B)12%.

C)25%.

Question#12of60

QuestionID:1212796

Basedontheinformationprovided,whichdevelopingcountryismostlikelytoachieveconvergenceingrowthratesand

standardoflivingwiththeirdevelopedcounterparts?

A)Toban.

B)Krosse.

C)Procken.

Questions#13-18of60

UsethefollowinginformationtoanswerQuestions13through18.

LyleKreiger,CFA,hasrecentlytakenananalystroleatRockwayStone,asmallprivateequityfirmbasedintheUnited

States.Aspartofhisrole,hehasbeenaskedtoreviewthemostrecentunauditedfinancialstatementsfromseveral

privatecompaniesthathavebeenidentifiedaspotentialinvestmentsforthefirm.

RockwayStonehasastrictpolicyofonlyinvestingincompaniesthatdemonstrateahighleveloffinancialreporting

quality.Thefirmhasdevelopedaninternalscoringsystemtorankthequalityofatargetcompany'sfinancialstatements.

Thescoringsystemawardspointsforeachincidentoflowreportingquality;anycompanythatreaches40pointsisnot

consideredforpotentialinvestment.ThescoringsystemisshowninExhibit1.

Exhibit1:RockwayStoneFRQualityScoreSheet

1.Anyinstanceofachangeinpolicyyear-to-yearorreclassificationofassets,liabilities,revenues,

orexpenses

5points

2.Anyinstancefrom1thatalsoresultsinanincreaseintotalassets

3.Anyinstancefrom1thatalsoresultsinanincreaseinrevenue

4.Anyindicationthatearningsarenotpersistent

Additional5

points

Additional10

points

5points

ThefirstreportKreigerisreviewingisfromTolstonConductors,afirmprovidinghighlypolishedmetalstothetechnology

industry.Kreiger'ssupervisorhasinstructedKreigertofocusontheinventorynoteshowninExhibit2.

Exhibit2:TolstonConductorsExtract

Note8–Inventories

20142013

Rawmaterials($'000)

WIP($'000)

481409

1,392894

Finishedgoods($'000)508496

Finishedgoodsareclassifiedasgoodsthatarecompleteinallrespectsexceptpackaging.Oftheamountofinventory

reportedaswork-in-progressin2013,$342,000hasbeenreclassifiedas"othercurrentassets."ThisWIPconsisted

primarilyofhighlypolishedmetalsthatarenowtobefurtherreworkedandarenotexpectedtobereadyforsalefortwo

years.

KreigerisalsoreviewingfinancialstatementsfromResonatorWellness,afirmproducinghealthandwellnessproductsin

theU.K.Extractsfromtheproformafinancialstatementrecentlyreleased,alongwith2013and2012comparables,is

showninExhibit3.

Exhibit3:ResonatorWellnessFinancialStatement–(Extract)

HeadlineOperatingProfit:QuarterEnding31December2014(£000)

2014

8,380

2013

7,980

2012

7,450

Stockholders'equity

Revenueretailoutletsales

Onlinesales

1,402.2

3,086.2

1,262.7

3,543.9

398.9

3,501.6

389.4

Headlinenetincome(NoteA)

1,104.4

1,086.0

NoteA:Headlinenetincomeexcludessettlementcostsandnetworkcosts.Settlementcostsareone-off

paymentstosettlelegalprocedures;thesecoststotaled(in£000)20.0,22.1,and24.8in2012,2013,and

2014,respectively.Networkcostsrelatedtorunningtheonlinebusinesstotaled(in£000)202.0,325.0,and

885.5in2012,2013,and2014,respectively.Thefinancialaccountssubmittedtoourbankinaccordancewith

ourloancovenantsshowsnetincomeafterchargingbothsettlementandnetworkcostsinaccordancewith

localGAAP.

Kreigernotesthatthefinancialstatementssubmittedtothefirm'sbankersdidindeedreportnetincomecorrectlyin

accordancewithlocalGAAP.However,thisfigurewasmuchlessprominentthanheadlinenetincome,astheGAAP

incomewasdisclosedonlyinthefootnotesratherthanonthefaceoftheincomestatement.Kreigerbelievesthatthelegal

settlementsarepaymentsmadetodissatisfiedcustomersandareanormalpartofbusiness.Kreigeralsobelievesthat

theincreaseinnetworkcostisconsistentwithincreasedfocusononlineoperations.Resonator'srequiredreturnon

stockholders'equityis5%.

Krieger'sfinaltaskistoanalyzeasetoffinancialstatementsforAltoJibPlc.,amanufacturingandengineeringcompany

thatisconsideringdelisting.ThecompanyhasalargenumberofinvestmentsinassociatesthatKreigerwouldliketo

isolate.RockwayStone'sapproachtoisolatingtheimpactofinvestmentinassociatesistoperformsomeclassicDuPont

analysistocalculateROE.Indoingso,netmarginandassetturnover(butnotfinancialleverage)areadjustedforthe

impactofinvestmentinassociates.

TheinformationKreigerhastoworkwithisshowninExhibit4alongwithRockwayStone'smethodofisolatingtheimpact

ofinvestmentinassociatesonROEusingDuPontanalysis.

Exhibit4:AltoJibPlc.FinancialStatements(Extracts)

2014

2013

2012

2011

(£000)(£000)(£000)(£000)

Revenue

998.5

44.4

17.8

918.6

31.2

11.2

817.6

26.7

8.4

Netincome

Incomefromassociates

Totalassets

1,260.81,166.61,043.21,012.1

Investmentinassociates101.6

83.8

569.8

1.99

72.6

542.5

1.93

64.2

Equity

638.4

2.01

524.2

Financialleverage

CalculationofROEexcludingassociates

Netmarginisbasedonnetincomeexcludingincomefromassociates.

Assetturnoveriscalculatedusingaveragetotalassetsexcludinginvestmentsinassociates.

Financialleverageiscalculatedusingaverageassetsandaverageequityincludinginvestmentsinassociates.

CalculationoftotalROE

Netmarginisbasedonnetincomeincludingincomefromassociates.

Assetturnoveriscalculatedusingaveragetotalassetsincludinginvestmentsinassociates.

Financialleverageiscalculatedusingaverageassetsandaverageequityincludinginvestmentsinassociates.

Question#13of60

QuestionID:1212805

DuetothereclassificationdescribedinExhibit2,inventoryturnoverwillmostlikely:

A)increase.

B)remainthesame.

C)decrease.

Question#14of60

QuestionID:1212806

UnderthescoringsystemdescribedinExhibit1andtakingintoaccounttheinventorynoteinExhibit2,Tolston

Conductorsshouldmostaccuratelybeassigned:

A)5points.

B)10points.

C)20points.

Question#15of60

QuestionID:1212807

WhichofthefollowingstatementsistheleastaccurateregardingResonatorWellnessinformationshowninExhibit3?

A)Thefinancialstatementssubmittedtoanalystsarenotasdecision-usefulasthey

couldbeduetobiasedaccountingchoices.

B)Thefinancialstatementssubmittedtothebankarenotasdecision-usefulasthey

couldbeduetobiasedaccountingchoices.

C)Thefinancialstatementssubmittedtothebankaredecision-usefulastheyexhibit

noevidenceofbiasedaccountingchoices.

Question#16of60

QuestionID:1212808

WhichofthefollowingconclusionsisKreigermostlikelytodrawabouttheearningsqualityofResonatorWellness?2014

netincomeaftercorrectlyincludingnetworkandsettlementcostsshows:

A)compoundannualgrowthofover7%,andearningsthatareofhighqualityasthey

arecorrectlycalculatedunderGAAP.

B)negativecompoundannualgrowthofover35%,andearningsthatareoflow

quality.

C)negativecompoundannualgrowthofover35%,andearningsthatareofhigh

qualityastheyarecorrectlycalculatedunderGAAP.

Question#17of60

QuestionID:1212809

Treatinganinvestmentasaninvestmentinassociateratherthaninasubsidiaryisleastlikelyto:

A)overstatenetprofitmargins.

B)understatefixedassets.

C)understatenetincome.

Question#18of60

QuestionID:1212810

UsingtheRockwayStoneapproachtocalculatingROEmeasuresoutlinedinExhibit4,Kreigerismostlikelytoconclude

that:

A)ROEexcludingtheeffectsofinvestmentinassociateshasdecreasedfrom2012to

2014.

B)ROEexcludingtheeffectsofinvestmentinassociatesin2014wasapproximately

35%lowerthanthetotalROEin2014.

C)totalROEwashigherthantheROEexcludingtheeffectsofinvestmentin

associatesfor2012and2014,butlowerin2013.

Questions#19-24of60

UsethefollowinginformationtoanswerQuestions19through24.

In2009,ContinentalSupplyCompanywasformedtoprovidedrillingequipmentandsuppliestocontractorsandoilfield

productioncompanieslocatedthroughouttheUnitedStates.Attheendof2013,ContinentalSupplycreatedawholly

ownedforeignsubsidiary,InternationalOilfieldIncorporated,tobeginservicingcustomerslocatedintheNorthSea.

InternationalOilfieldmaintainsitsfinancialstatementsinacurrencyknownasthelocalcurrencyunit(LCU).Continental

SupplyfollowsU.S.GAAPanditspresentationcurrencyistheU.S.dollar.

Fortheyears2013through2016,theweighted-averageandyear-endexchangerates,statedintermsoflocalcurrency

perU.S.dollar,wereasfollows:

LCU/$US2013201420152016

Average0.901.051.051.25

Year-end1.001.101.001.50

InternationalOilfieldaccountsforitsinventoryusingthelower-of-cost-or-marketvaluationmethodinconjunctionwiththe

first-in,first-out,costflowassumption.Alloftheinventoryonhandatthebeginningoftheyearwassoldduring2016.

Inventoryremainingattheendof2016wasacquiredevenlythroughouttheyear.

Atthebeginningof2014,InternationalOilfieldpurchasedequipmenttotalingLCU975millionwhentheexchangeratewas

LCU1.00to$1.During2015,equipmentwithanoriginalcostofLCU108millionwastotallydestroyedinafire.Attheend

of2015,InternationalOilfieldreceivedaLCU92millioninsurancesettlementfortheloss.OnJune30,2016,International

OilfieldpurchasedequipmenttotalingLCU225millionwhentheexchangeratewasLCU1.25to$1.

Fortheyears2015and2016,ContinentalSupplyreportedInternationalOilfieldrevenuesinitsconsolidatedincome

statementof$375millionand$450million,respectively.Therewerenointer-companytransactions.Followingare

InternationalOilfield'sbalancesheetsattheendof2015and2016:

LCUinmillions

Cashandreceivables

Inventory

20162015

120.0216.0

631.3650.4

820.7693.6

Equipment

Liabilities(allmonetary)600.0600.0

Capitalstock

350.0350.0

622.0610.0

Retainedearnings

Attheendof2016,InternationalOilfield'sretainedearningsaccountwasequalto$525millionand,todate,nodividends

havebeenpaid.AllofInternationalOilfield'scapitalstockwasissuedattheendof2013.

Question#19of60

QuestionID:1212798

AssumingInternationalOilfieldisasignificantlyintegratedsalesdivisionandvirtuallyalloperating,investing,and

financingdecisionsaremadebyContinentalSupply,foreigncurrencygainsandlossesthatarisefromtheconsolidationof

InternationalOilfieldshouldbereportedin:

A)shareholders’equity.

B)operatingcashflow.

C)netincome.

Question#20of60

QuestionID:1212799

AssumingthatInternationalOilfield'sequipmentisdepreciatedusingthestraight-linemethodover10yearswithno

salvagevalue,calculatethesubsidiary's2016depreciationexpenseunderthetemporalmethod.

A)$95.7million.

B)$104.7million.

C)$114.7million.

Question#21of60

QuestionID:1212800

ComputethecumulativetranslationadjustmentreportedonContinentalSupply'sconsolidatedbalancesheetattheendof

2016,assumingInternationalOilfieldisarelativelyself-containedandindependentoperationofContinentalSupply.

A)–$227million.

B)–$200million.

C)$298million.

Question#22of60

QuestionID:1212801

Comparedtothetemporalmethod,whichofthefollowingbestdescribestheimpactofthecurrentratemethodon

InternationalOilfield'sgrossprofitmarginpercentagefor2016whenstatedinU.S.dollars?Thegrossprofitmarginwould

be:

A)lower.

B)higher.

C)thesame.

Question#23of60

QuestionID:1212802

WhenremeasuringInternationalOilfield's2016financialstatementsintothepresentationcurrency,whichofthefollowing

ratiosisnotaffectedbychangingexchangeratesunderthetemporalmethod?

A)Currentratio.

B)Totalassetturnover.

C)Quickratio.

Question#24of60

QuestionID:1212803

AssumethecountrywhereInternationalOilfieldisoperatinghasbeenexperiencing30%annualinflationoverthepast

threeyears.WhichofthefollowingbestdescribestheeffectonContinental'sconsolidatedfinancialstatementsforthe

yearended2016?

A)Againisrecognizedintheincomestatement.

B)Alossisrecognizedintheincomestatement.

C)Againisrecognizedasadirectadjustmenttothebalancesheet.

Questions#25-30of60

UsethefollowinginformationtoanswerQuestions25through30.

SampsonAerospaceisapubliclytradedU.S.manufacturer.Sampsonsuppliescommunicationandnavigationcontrol

systemstomanufacturersofairplanesforcommercialandgovernmentuse.Thecompanyoperatestwodivisions:(1)

CommercialOperations,and(2)GovernmentOperations.RevenuesfromtheGovernmentOperationsdivisioncomprise

80%ofSampson'stotalcompanyrevenues.Revenuesforothercompaniesintheindustryarealsodrivenprimarilyby

salestotheU.S.government.

Sampsonhasgainedareputationforofferinguniqueproductsandservices.Sampson'smarketsharehasbeen

increasing,anditsnetprofitmarginisamongthehighestinitsindustry.

Zone,Inc.,("Zone")isasmallprivatelyheldnetworksolutionscompanyinthesouthwesternUnitedStates.Zoneis

profitable,andalmostentirelyequityfinanced.DrewSmith,Sampson'sCFO,isevaluatingapotentialacquisitionofZone

inaleveragedbuyout.Inhisanalysis,SmithmakesseveraladjustmentstoZone'sfinancialstatementsasdetailedbelow:

Adjustment1:Zone'sowner/CEOreceivedacompensationpackageof$1.2millionincludingbonus.Thisis

consistentwithCEOcompensationpackagesatotherfirms.Smithconsidersthecurrentmanagementteamto

beverycompetentanddoesnotanticipateanymajorchanges;however,heincreasestheestimatefor

compensationexpenseto$1.5million.

Adjustment2:Zonehaslong-termleasesonallofitsfacilities.Theleaserateswerenegotiatedbeforethereal

estatemarketcollapsedrecently.Smithadjuststheleasingcostdownwardby$3million.

Adjustment3:ZonehaspurchasedfractionalownershipinacorporatejetforitsCEO.Thebenefit,withan

annualcostof$350,000,isdeemedtobeexcessivebymarketstandardsandSmithadjuststhecostestimate

bythatamount.

Exhibit1showsprojectionsofselectedfinancialdataforZoneforthenextyear.

Exhibit1:SelectedFinancialInformation(Estimates)forZone,Inc.

Item

NormalizedEBITDA

Depreciation

$Millions

32

11

8

SG&Aexpense

Netincome

15

6

Capitalexpenditure

Workingcapitalexpense

Interestexpense

5

2

Note:Zone'staxrateisexpectedtobe25%.

SampsonAerospacerecentlyannouncedthatitisreducingitsinvestmentreturnassumptiononitspensionassetsfrom

6%to5%,andthatithasenterednegotiationstopossiblyacquirecontrollingequityinterestsincommunicationssoftware

firms,NavTechandAerospaceCommunications.NavTechrecentlyhasdecidedtocapitalizeasignificantportionofits

researchanddevelopmentexpense,andAerospaceCommunicationshasrestructuredandreclassifiedmanyofitsleases

fromoperatingtofinancialleases.SmithrecentlyannouncedthatSampsonhaddroppedoutofnegotiationswith

KnowledgeTechnologies,claimingitwaslikelynotasustainablebusinessmodel.

ConsensusforecastsforNavTechandAerospaceCommunicationsarepresentedinExhibit2.

Exhibit2:SelectedFinancialDataforNavTechandAerospaceCommunications

NavTechAerospaceComm.

Expectedyear-enddividendpershare

Expectedyear-endfreecashflowtoequitypershare

Weightedaveragecostofcapital

Requiredreturnonequity

$1.07

$0.80

10%

$0.55

$1.25

9%

12%

12%

$25

Currentstockprice

$21.40

Question#25of60

QuestionID:1212819

QuestionID:1212820

QuestionID:1212821

RegardingSmith'sadjustmentstoZone'sfinancialstatements,themostappropriateadjustmentis:

A)Adjustment1.

B)Adjustment2.

C)Adjustment3.

Question#26of60

Forvaluationpurposes,Zone'sexpected(firstyear)FCFFisclosestto:

A)$14million.

B)$15million.

C)$16million.

Question#27of60

ThemostappropriateapproachforSampsonAerospace'svaluationofNavTechandAerospaceCommunicationsis:

A)thedividenddiscountmodel.

B)thefreecashflowmodel.

C)therelativevaluemodel.

Question#28of60

QuestionID:1212822

Regardingthefinancialstatementinformationprovidedintheanalyst'sreport,thequalityoffinancialstatementshas

improvedleastfor:

A)Sampson.

B)NavTech.

C)AerospaceCommunications.

Question#29of60

QuestionID:1212823

ByclaimingthatKnowledgeTechnologiesis"notasustainablebusinessmodel,"SampsonCEODrewSmithwouldmost

likelyestimateKnowledgeTechnologies'svalueusing:

A)balancesheetvalue.

B)goingconcernvalue.

C)liquidationvalue.

Question#30of60

QuestionID:1212824

AssumingthatNavTechisvaluedaccordingtotheconstantgrowthdividendmodel,themarketexpectationofdividend

growthimpliedbyNavTech'scurrentstockpriceisclosestto:

A)3%.

B)5%.

C)7%.

Questions#31-36of60

UsethefollowinginformationtoanswerQuestions31through36.

IvanJohnsonisreviewingth