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Summer 2011_ACC351A_Midterm_solutions_student_dist

Summer 2011_ACC351A_Midterm_solutions_student_dist -...

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ACC351A – Midterm Quiz Name Refer to the supporting documentation.   1. (10%) Below is ratio data for General Mills (GIS), a key competitor of Kellogg.  Calculate the following ratios for the 2010  fiscal year for Kellog  and indicate  whether they are better or worse than the industry ratios.   GIS Kellogg Better/Worse Net Profit Margin 10.89% 10.1% Worse Revenue Growth 1.44% (1.4%) Even Return on Assets 8.84% 10.5% Better 2. (10%) Calculate Kellogg’s Long Term Debt to Equity ratio for fiscal year ended  2010 and state whether it is better or worse than the industry average of 82.6%.  Do you think that Kellogg has the capacity to incur (take on) additional debt?  Does your viewpoint change if you include Kellogg’s off balance sheet operating  leases of $450 million? LTD/Equity is 228%.  With leases 249%.  0 3. (10%) Kellogg’s current stock price and P/E are $54.92 and 17.2, respectively.  General Mill's current stock price and P/E are $37.95 and 15.1, respectively.  Which stock is more expensive Kellogg or General Mills  and why ?  Everything  else being equal, how much incremental (additional) income per share would  General Mills have to earn to have a P/E equal to Kellogg?  ACC351 Summer 2011 Page 1 of 11 Neyland
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Kellogg more expensive with 17.2 P/E Price 37.95 P/E EPS 15.1 Price 37.95 P/E EPS 17.2 Need decrease in EPS of $0.3068.  4.  Kellogg is exploring the option of building a new state of the art production and  distribution facility in Detroit, Michigan. It is a risk for the company as all of its  production and distribution facilities are in rural parts of the state.  This would be  its first urban facility.   The city of Detroit is offering very attractive incentives to attract Kellogg. 
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