What new debt ratio, along with the 12% profit margin, is required to double the ROE? 70 percent 15. The Local Company is a relatively small, privately owned firm. In 1981 Local had an after-tax income of $15,000, and 10,000 shares were outstanding. The owners were trying to determine the equilibrium market value for Local's stock, prior to taking the company public. A similar firm that is publicly traded had a price/earnings ratio of 5.0. Using only the information given, estimate the market value of one share of Local's stock. $7.50 5
16. Epsilon Co.'s records have recently been destroyed by fire. Given the following bits of information saved from the inferno, determine Epsilon's net income for 1999. Return on equity 22% Assets/net worth 2.167 Profit margin 5.6% Total assets $650 million $ 66.00 million 17.Delta Corp. has sales of $300,000, a profit margin of 6.5 percent, a tax rate of 15 percent, and annual interest charges of $7,500. What is Delta's times interest earned? 18. Coastal Packaging ‘s ROE last year was only 3 percent, but its management has developed a new operating plan designed to improve things. The new plan calls for a total debt ratio of 60 percent, which will result in interest charges of $300 per year. Management projects an EBIT of $1,000 on sales of $10,000, and it expects to have a total asset turnover ratio of 2.0. Under these conditions, the average tax rate will be 30 percent. If the changes are made, what return on equity will Coastal earn? 24.5 percent 19.Yohe Inc. has an ROA of 13.4% and a 10% profit margin. The company has sales equal to $5 million. What are the company's total assets? 20.Yohe Inc. has a current ratio of 2, and a quick ratio of 1.4. Furthermore, the firm has $1.5million in current liabilities. Based upon this information, how much inventory is Yohe holding? 21. U KNO, Inc. uses only debt and common equity funds to finance its assets. This past year the firm's return on total assets was 13%. The firm financed 42% percent of its assets using debt. What was the firm's return on common equity? 22.41% 22. Cleveland Corporation has 17,490,000 shares of common stock outstanding, its net income is $194 million, and its P/E ratio is 15.1. What is the company’s stock price? $167.49 23.AAA's inventory turnover ratio is 11.09 based on sales of $15,200,000. The firm'scurrent ratio equals 3.22 with current liabilities equal to $970,000. What is the firm's quick ratio?
1. Interest rates on one-year Treasury securities are currently 5.6 percent, while two-year Treasury securities are yielding 6 percent. If the pure expectations theory is correct, what does the market believe will be the yield on one-year securities one year from now? 6.4 percent 2. Interest rates on four-year Treasury securities are currently 7 percent, while interest rates on six-year Treasury securities are currently 7.5 percent. If the pure expectations theory is correct, what does the market believe that two-year securities will be yielding four years from now?
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