FinalSolution362-Fall2008

FinalSolution362-Fall2008 - ECO 362: Financial Markets...

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ECO 362: Financial Markets Solutions for Fall 2008 Final Exam INSTRUCTIONS You have 3 hours to complete this exam. This exam is closed book and closed notes, except for one 8x11 cheat sheet. Calculators are allowed. There are 21 questions for a total of 164 points. Questions are not arranged in the order of difficulty. IMPORTANT: You need to show your work to get full credit. Put all your work on the space provided on the exam. This exam is taken under the Student Conduct Code, which stipulates: Any use of external assistance during an examination shall be considered academically dishonest unless expressly permitted by the instructor. The following are considered unacceptable examination behaviors: communicating with fellow students during an exam, copying material from another student’s exam, allowing another student to copy from an exam, possession or use of unauthorized notes, calculator, or other materials during exams and/or any behavior that defeats the intent of an exam or other class work. Please sign your name below to acknowledge and accept the Student Conduct Code. SIGNATURE: (Please sign) NAME: (Please print) STUDENT ID/SSN SECTION INSTRUCTOR 1 2 3 4 5 6 7 8 9 1 0 1 1 1 2 1 3 1 4 1 5 1 6 1 7 1 8 1 9 2 0 21
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1) (8 pts) Firm XYZ has the following ratios: ROE: 0.06 Tax Burden (Net Profit / Pretax Profit): 0.6 Interest Burden (Pretax Profit / EBIT): 0.68 Margin (EBIT / Sales): 0.1 Leverage (Assets / Equity): 2 1) Find its Turnover (Sales / Assets). (choose the answer below that is closest to your computations.) a) 0.75 b) 0.85 c) 0.95 d) 1.05 e) 1.15 From the Dupont Formula, 0.06 = 0.6 * 0.68 * 0.1 * Turnover * 2 Turnover = 0.735 (Answer: A)
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2) (8 pts) The financial statements of Tennessee Tractor Company are given below Tennessee Tractor Company Income Statement (2003) Sales $8,000,00 0 Cost of goods sold 5,260,000 Gross profit 2,740,000 Selling and administrative expenses 1,500,000 Operating profit 1,240,000 Interest expenses 140,000 Income before tax 1,100,000 Tax expense 440,000 Net income $660,000 Balance Sheet 2003 Cash $ 200,000 Accounts receivable 1,200,000 Inventory 1,840,000 Total current assets 3,240,000 Fixed assets 3,200,000 Total assets $6,440,00 0 Accounts payable 800,000 Bank loan 600,000 Total current liabilities 1,400,000 Bonds payable 900,000 Total liabilities 2,300,000 Find its ROA in 2003. (choose the answer below that is closest to your computations.) a) 5% b) 10% c) 15% d) 20% e) 25% ROA = EBIT / Assets = $1,240,000 / $6,440,000 = 0.193 (Answer: D)
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3) (8 pts) Price a bond with face value $100,000, expiration date 3 years from now, coupon rate of 10% per year (with the first coupon payment occurring 1 year from now), and yield to maturity of 3% per year. (choose the answer below that is closest to your computations.) a) $90,000 b) $100,000 c)$110,000 d) $120,000 e) $130,,000 P = $10,000 / 1.03 + $10,000 / (1.03^2) + $110,000 / (1.03^3) = $119,800.28 (Answer: D)
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This note was uploaded on 01/15/2011 for the course ECO 362 at Princeton.

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FinalSolution362-Fall2008 - ECO 362: Financial Markets...

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