i. A ir France-KLM operates in the highly cyclical airline industry. Operating margins for the last nine years are shown in the following table.

On the basis of only the information in the table, which of the following operating margins would most likely be appropriate to use in a perpetuity calculation for Air France-KLM to arrive at a reasonable intrinsic value estimate?
A. 2.2%
B. 3.8%
C. 5.3%

For each of the companies in the following problems, indicate which of the choices is least likely to cause an inflection point in the company’s outlook.
ii. Nokia, a manufacturer of cell phones and mobile network equipment.
A. Pricing of technology components has been steadily falling, consistent with past experience, and this decline is expected to continue over the next several years.
B. Consumers have been rapidly adopting smartphones, threatening Nokia’s historic strength in lower-end devices.
C. Nokia has formed a partnership with Microsoft to supply phones with a potentially important new operating system.
iii. Abbott Laboratories, a diversified manufacturer of health care products, including pharmaceuticals and medical devices.
A. It has become more difficult for medical device manufacturers to receive regulatory approval for new products because of heightened safety concerns.
B. A competitor has demonstrated favorable efficacy data on a drug candidate that will compete with an important Abbott product.
C. Management reiterates its long-standing approach to capital deployment.
iv. Grupo Aeroportuario del Sureste, operator of nine airports in Mexico, especially in the tourist-heavy southeast.
A. A technological advance will allow airlines to save 5% on fuel costs, but it is not expected to meaningfully alter passenger volumes. Similar developments in the past have benefited airlines but not airports, whose price per passenger is regulated.
B. Global economic disruption has caused a sharp decline in international travel.
C. Regulators will allow the construction of a new airport by a competitor in Grupo Aeroportuario del Sureste’s service territory.
v. L inkedIn, operator of an online social network for professionals, with low investment needs and no debt.
A. Facebook, another online social network, announces a plan to enhance its offerings in the professional category.

B. Regulators announce an investigation of LinkedIn’s privacy practices, which could result in significant changes to the service.
C. The US Federal Reserve has just increased interest rates. Although this will raise borrowing costs, the rate increase is not expected to have a negative impact on the economy.

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2003 2004 2005 2006 2007 2008 2009 2010 2011 -0.8 -6.1 3.8 Operating Margin (%) 1.5 1.1 2.6 6.8 5.3 5.3