Cib - Quiz, December 6, 2012

21 Questions

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December Quizzes & Trivia

Review of organizational structure, venture capital and 401K plans.


Questions and Answers
  • 1. 
    This function within a company handles the accounting, treasury, budgeting and planning activities:
    • A. 

      Human Resources

    • B. 

      Finance

    • C. 

      Supply Chain Management

    • D. 

      Sales

  • 2. 
    This function within a company is tasked with driving the revenue of the organization and works closely with marketing to devise strategies to grow the “top-line.”
    • A. 

      Finance

    • B. 

      Human Resources

    • C. 

      Operations

    • D. 

      Sales

  • 3. 
    The most important factor Don Valentine considers when investing in a new business:  
    • A. 

      Where the entrepreneur went to college

    • B. 

      An entrepreneur’s previous accomplishments

    • C. 

      The potential size of the market that the entrepreneur is chasing

    • D. 

      The size of the entrepreneur’s business at the time of investing

  • 4. 
    According to Don Valentine, the greatest opportunities in the technology space in the future are based on what trend:  
    • A. 

      Wind and solar power

    • B. 

      Shift from plasma TVs to LED TVs

    • C. 

      Shift from Microsoft to Google

    • D. 

      Shift from personal computers to mobile communications (smart phones and tablets)

  • 5. 
    When asked to consider his biggest investing regrets, Don Valentine' response provided evidence that in order to be a successful investor, you need to:
    • A. 

      Be able to forget about your mistakes quickly so you don’t miss the next opportunity that comes along

    • B. 

      Dwell on all of your mistakes to be sure that they never happen again; be cautious in investing in companies in the future because you don't want another company to fail.

    • C. 

      Stop investing for a long time so you can adequately figure out what went wrong

    • D. 

      Only invest in companies that you know will succeed

  • 6. 
    What is the fiscal cliff and why does it matter?
    • A. 

      The fiscal cliff is a massive reduction in tax rates scheduled to take effect on January 1, 2013. If this happens the US budget deficit will balloon and create a crisis.

    • B. 

      Tax increases and significant reductions in government expenditures in the US which will occur on January 1, 2013 (and likely lead to economic weakness if Congress does not act).

    • C. 

      The need to address the budgetary requirements of Obamacare and new initiatives around clean energy. Democrats want action on these topics and Republicans are stalling. Without action, Obamacare will fail and the price of oil will shoot through the roof.

    • D. 

      The impasse between Democrats and Republicans regarding how to solve the Medicare and Social Security deficits. These deficits are looming and will cause recessionary pressures in 2013 if not addressed immediately.

  • 7. 
    After analyzing the fiscal situation, you become convinced that the U.S. Congress will not reach agreement to prevent the fiscal cliff (note that this is NOT the consensus viewpoint which believes that a deal will happen).  What is the likely impact on the stock markets in the United States in the next month?  
    • A. 

      Stock market will rise

    • B. 

      Stock market will drop

    • C. 

      No change

  • 8. 
    True or False.  Raising income tax rates on all Americans by 3% in 2013 will have a positive impact on the U.S. economy in the short-term as it will increase consumer spending, which is 70% of the US economy. 
    • A. 

      True

    • B. 

      False

  • 9. 
    Frank’s Furniture, Inc. just announced that its and earnings for 2012 grew 15% vs. 2011 earnings. What are some reasons Frank’s might have been able to grow its earnings? SELECT ALL CORRECT ANSWERS.
    • A. 

      The price Frank’s pays for its Oak and Mahogany lumber, two materials critical to making most of Frank’s products, dropped dramatically in 2012.

    • B. 

      Frank’s has retail stores in 22 cities and was the largest furniture store in each of those cities in 2011. In 2012, Frank’s key competitor, Ikea, opened stores in six of the 22 cities in which Frank’s operates.

    • C. 

      After 20 years of offering tables, chairs, sofas and bookshelves, in 2012, Frank’s began offering bedroom furniture as well (beds and dressers). Customers loved these new products.

    • D. 

      Frank’s began offering free home delivery. This adds meaningful costs to each sale, but customers are happier. So far, this added benefit to customers does not seem to be driving more revenue.

  • 10. 
    At the end of 2007, Amazon had EPS of $1.12 and a P/E multiple of 83x. At the end of 2011, EPS was $1.39, but the P/E multiple had grown to 127x.  What happened to the stock price between 2007 and 2011? 
    • A. 

      It increased.

    • B. 

      It decreased.

    • C. 

      More information is needed.

  • 11. 
    In 2008 Google's stock priced traded with within a range of 21x to 23x P/E (price to earnings).  Currently, Google still trades within a PE range of 21-23x. The stock price ended 2008 at $308 per share. Today the stock price is $695. What happened to earnings (EPS) between 2008 and today?
    • A. 

      Earnings dropped roughly in half

    • B. 

      Earnings increased, more than doubling

    • C. 

      Earnings increased by roughly 50%

    • D. 

      More information is required

  • 12. 
    Wall Street research analysts expect Home Depot to earn $3.47 per share next year, up from $3.04 this year. The stock currently trades at $65.00 per share, or a P/E multiple of 21.4x this year’s EPS (earnings per share). If Home Depot “hits estimates” for next year (ie, it earns $3.47 per share), at what price would you expect the stock to trade one year from now assuming it is trading at the same P/E as now?
    • A. 

      $76.24

    • B. 

      $74.26

    • C. 

      Roughly $60 per share

    • D. 

      Roughly $90 per share

    • E. 

      None of the above

  • 13. 
    You have been studying the housing market and you are convinced the next twelve months will show real signs of recovery. Specifically, you believe 20% more new homes will be built and sold than most others believe. This will be a good thing for Home Depot and you predict Home Depot’s earnings will be $4.00 per share, vs. the $3.47 “consensus estimate.”  You also believe that once other investors see this higher earnings per share result for Home Depot, they will get more excited about Home Depot’s growth and the P/E multiple will likely increase from 21.4x (where it is now) to 25x.  Approximately how much “upside” (how much will the stock price rise) is in the stock over the next year based on your estimates (remember, it trades at $65 per share today)? 
    • A. 

      15%

    • B. 

      53%

    • C. 

      17%

    • D. 

      20%

    • E. 

      None, the stock will likely go down

  • 14. 
    Which of the following would be considered attractive results for a venture capital firm over the long term?
    • A. 

      10-20% annual returns

    • B. 

      20-40% annual returns

    • C. 

      At least a few percentage points better than US Treasury Bonds

    • D. 

      5-10% since the big successes will be offset by some investments going to zero

  • 15. 
    How do venture capital firms make money?
    • A. 

      The company’s in which they invest pay them for their help

    • B. 

      They get a share (percentage) of the capital gains (or profits) when a company in which they invest achieves a “liquidity” event (IPO or sale)

    • C. 

      They do not worry about making money since most venture capitalists do it because they love working with entrepreneurs

    • D. 

      D. When company’s in which they invest fail, the company has to pay the Venture Capital firm for all its hard work up to that point

  • 16. 
    Nearly all venture capital firms are very profitable, which is why the number of venture capital firms has doubled in the last decade.  
    • A. 

      True

    • B. 

      False

  • 17. 
    Which of the following is true of how venture capital firms make the investment returns they do? Circle all correct answers.
    • A. 

      They take risk—invest early, before they can truly know the company will be successful

    • B. 

      They fund losses before the company has revenue and profits

    • C. 

      They only invest in the companies they know will be successful

    • D. 

      They hope the winners will make up for the losers

    • E. 

      It is pretty easy since most start-up companies grow to be big, valuable businesses

  • 18. 
    Why would a teacher’s retirement plan such as the California State Teachers Retirement System (“CALSTER”) invest in a venture capital firm?
    • A. 

      The rates of return from a venture capital fund are highly predictable and allow the retirement fund to grow

    • B. 

      Retirement funds invest over long periods of time and, though risky in the short term, good venture capital firms earn higher returns than most other types of investments

    • C. 

      Venture firms are highly focused on investing in companies that will improve education

    • D. 

      Teachers are firm believers in investing in new technology