Chapter 1:3, 7, 9
Chapter 2:2, 6
3.) Suppose three honest individuals gave you their estimates of Stock Xs
intrinsic value. One person is your current roommate, the second person is
a professional security analyst with
Chapter 3:5, 7, 11
Chapter 4:7, 9
Chapter 5:1, 3
5) Investors need to be cautious when they review financial statements because although companies are required to follow generally accepted accounting procedures (GAAP), a mana
Seminar 4 Problem Answers
10-1rd(1 T) = 10%(0.60) = 6.00%.
10-5Projects A, B, C, D, and E would be accepted since each
projects return is greater than the firms WACC.
10-7a.rs = + g
= + 0.06
b.F = ($36.00 $32.40)/$36.00 = $3.60/$36.00 = 10%.
2.) Assume that the risk-free rate increases, but the market risk premium
remains constant. What impact would this have on the cost of debt? What
impact would it have on the cost of equity?
An increase in risk-free
1. Changes in sales cause changes in profits.The profit change associated with a decline in sales and an increase in operating leverage would
be a large decline and in its ROE as well.(Houston, 2015)
6. Public utility compani
15-1 What are some pros and cons of holding high levels of current
assets in relation to sales? Use the DuPont equation to help explain
The DuPont equation is ROE = Profit margin x Total assets turnove
Seminar 2 Problem Answers
3-1From the data given in the problem, we know the following:
Current assets$500,000cAccounts payable
Net plant and equipment2,000,000
Mutual of Chicago Insurance Company
Robert Balik and Carol Kiefer are senior vice presidents of the Mutual of Chicago Insurance Company.They are codirectors of the companys pension fund management division, with Balik