10.
Question :
(TCO H) TexMex Food Company
is considering a new salsa whose
data are shown below. The
equipment to be used would be
depreciated by the straight-line
method over its three-year life and
3. Question :
(TCO D) Rebello's preferred stock pays a dividend of $1.00 per
quarter, and it sells for $55.00 per share. What is its effective annual
(not nominal) rate of return?
Student Answer:
6.62
Question :
(TCO D) Scanlon Inc.'s CFO hired you as a consultant to help her
estimate the cost of capital. You have been provided with the following
data: rRF = 4.10%; RPM = 5.25%; and b = 1.30. Based
(3-4)
Profit margins and turnover ratios vary from one industry to another. What differences would
you expect to find between a grocery chain such as Safeway and a steel company? Think
particularly ab
c. How do corporations go public and continue to grow? What are agency problems? What is corporate governance?
A company goes public when it sells stock to the public in an initial public as the firm
j. What do we call the price that a borrower must pay for debt capital? What is the price of equity capital? What are
the four most fundamental factors that affect the cost of money, or the general le
2-7
(1) Interest charges of $50,000,
(2) Dividends received of $15,000,
(3) Dividends paid of $25,000, and (4) income taxes.
a)What are the firms income tax liability and its after-tax income
b) What
3-1
a. Liquidity ratios: current ratio; quick, or acid test, ratio
Liquidity ratios: indicator that determines whether a firm has enough short-term assets to cover
its immediate liabilities without se
3-1
a. Liquidity ratios: current ratio; quick, or acid test, ratio
Liquidity ratios: indicator that determines whether a firm has enough short-term assets to cover
its immediate liabilities without se
d. Profitability ratios: profit margin on sales; basic earning power (BEP) ratio; return on
total assets (ROA); return on common equity (ROE)
profit margin on sales : indicates the dollars in income t
(3-2)
Financial ratio analysis is conducted by managers, equity investors, long-term creditors, and
short-term creditors. What is the primary emphasis of each of these groups in evaluating ratios?
Thi
(3-3)
Over the past year, M. D. Ryngaert & Co. has realized an increase in its current ratio and a drop
in its total assets turnover ratio. However, the companys sales, quick ratio, and fixed assets
t
(3-6)
Why is it sometimes misleading to compare a companys financial ratios with those of other
firms that operate in the same industry?
Within the same industry some of the firm may operate in their
4-1
Principle amount (P)= $ 10,000
number of years (n) = 5 years
rate of interest (r) = 10%
Total amount = P*
Total amount after five years = $10,000 * [1+ (10/100)] 5
= $ 10,000 * (1+0.1)5
= $10,000*
4-2
Future Value =
$5,000
Years
=
20
Discount %
=
7%
Use the following equation to calculate present value:
Present Value =
Future Value X (Present Value Interest Factor (PVIF) )
=
$5,000
X (1/1.07) ^
4-6
300[(1 + 0.07)5-1)/0.07]
= 1725.22
4-13
Present Value of an Annuity
Find the present value of the following ordinary annuities (see the Notes to Problem 4-12).
a. $400 per year for 10 years at 10%
5-1
In this problem F = 1000. Since we are not given the maturity value, we can assume that it is the
same as the par value. So, C = 1000.
r = .08
i = .09
n = 12
P = F*r*[1 -(1+i)^-n]/i + C*(1+i)^-n,T
5-2
Wilson Wonderss bonds have 12 years remaining to maturity. Interest is paid annually,
the bonds have a $1,000 par value, and the coupon interest rate is 10%. The bonds sell at
a price of $850. Wha
5-7
Bond Valuation with Semiannual payments
Renfro Rentals has issued bonds that have a 10% coupon rate, payable semiannually. The
bonds mature in 8 years, have a face value of $1,000, and a yield to
5-13
Yield to Maturity and Current Yield
You just purchased a bond that matures in 5 years. The bond has a face value of $1,000
and has an 8% annual coupon. The bond has a current yield of 8.21%. Wha
(6-1) Portfolio Beta
An individual has $35,000 invested in a stock with a beta of 0.8 and another $40,000 invested in
a stock with a beta of 1.4. If these are the only two investments in her portfolio
(6-2) Required Rate of Return
Assume that the risk-free rate is 6% and that the expected return on the market is 13%. What is
the required rate of return on a stock that has a beta of 0.7?
6+.7*13-6=
(6-7) Required Rate of Return
Suppose rRF = 9%, rM = 14%, and bi = 1.3.
a.
What is ri, the required rate of return on Stock i?
9+1.3*14-9=15.5%
b.
Now suppose rRF (1) increases to 10% or (2) decreases
7-2
Constant Growth Valuation
Boehm Incorporated is expected to pay a $1.50 per share dividend at the end of this year (i.e.,
D = $1.50). The dividend is expected to grow at a constant rate of 7% a ye
7-4
What is the stocks required rate of return?
$5/$50 = 10%
A company currently pays a dividend of $2 per share (D = $2). It is estimated that the companys
dividend will grow at a rate of 20% per yea
9-2
LL Incorporateds currently outstanding 11% coupon bonds have a yield to maturity of 8%. LL
believes it could issue new bonds at par that would provide a similar yield to maturity. If its
marginal