Fin 423

Example Questions for the Final

The following are four example questions of the type that have appeared on final exams. Some questions could involve calculations so bring a calculator.

1.  Comment on the following quote from the L.A. Times:

The unusual $200-per-share offer that Teledyne Inc. made Wednesday for at least 25% of the its common stock has astounded even veteran financial analysts, who predict that the vast majority of big institutions that own the shares will jump at the lucrative offer.  Although Teledyne has made seven previous offers to repurchase its shares since the early 1970's, never before has the conglomerate offered such a substantial premium over its existing trading price or sought such a large purchase......The motivation behind the unprecedented offer is a belief by Teledyne Chairman Henry Singleton and the Teledyne board that the firm's stock is undervalued, according to Fayez S. Sarofim, one of Teledyne's largest shareholders......"In a slow-growth environment, it is a viable strategy," he said in a telephone interview. "When your shares are undervalued you are going to increase your earnings per share for the remaining shares. How can you argue with success?  A lot of companies follow the tender route to best serve their stockholders." Sarofim said.

2. The following is from Business Week:

"Rocker, managing partner of Rocker Partners Ltd., is a savvy player in stocks that look like candidates for restructuring. He figures that Chrysler is greatly undervalued, particularly if one ignored asset is taken into account: Chrysler Financial, its lending unit. Rocker believes that the company is considering various options, including a spinoff or sale of Chrysler Financial. Such moves invariably raise the value of a company's assets and its stock price."

3. Comment on the following quote:

.....this merger wave was set off by the demand of T. Boone Pickens' stockholders group that Gulf give shareholders the income from oil production rather than reinvesting it. 

.....Pickens knew that any scheme he could devise to raise the stock price was likely to get the support of Gulf's stock controlled by institutional investors, mainly managers for pension funds.  Such managers, as fiduciaries, must vote to increase the value of assets under their control.  But a going business investing in its long-term future also increases value.  Why should managers of pension fund money--by definition long-term money--be oriented towards short-term results?

4. Consumer Reports offers the following subscription plans (you pay in advance):

1 year 2 year 5 year $24.00 $39.00 $84.00

Assume that you plan to be a subscriber for a long time. Discuss an optimal strategy for subscribing. Explain the methodology and the rational for your choice. Introduce whatever additional information you may deem necessary.