Assume you are given the following
relationships for the Clayton Corporation:
Return on assets (ROA)
Return on equity (ROE)
1.Calculate Clayton's profit margin.
Round your answer to two decimal places.
2.Calculate Clayton's debt ratio. Round
your answer to two decimal places.
Stock R has a beta of 1.8, Stock S has
a beta of 0.65, the expected rate of return on an average stock is
13%, and the risk-free rate is 4%. By how much does the required
return on the riskier stock exceed the required return on the riskier
stock exceed that on the less risky stock?
Wilson Wonders's bonds have 7 years
remaining to maturity. Interest is paid annually, the bonds have a
$1,000 par value, and the coupon interest rate is 9%. The bonds sell
at a price of $1,095. What is their yield to maturity? Round your
answer to two decimal places
Thress Industries just paid a dividend
of $4.00 a share (i.e., D0 = 4.00). The dividend is expected to grow
5% a year for the next 3 years and then at 11% a year thereafter.
What is the expected dividend per share for each of the next 5 years?
Round your answers to the nearest cent.
a.D1 = $
PREFERED STOCK RATE OF RETURN
What will be the nominal rate of return
on a perpetual preferred stock with a $100 par value, a stated
dividend of 8% of par, and a current market price of (a) $57, (b)
$85, (c) $95, and (d) $134? Round the answers to two decimal places.
Assume that the average firm in your
company's industry is expected to grow at a constant rate of 6% and
that its dividend yield is 8%. Your company is about as risky as the
average firm in the industry, but it has just successfully completed
some R&D work that leads you to expect that its earnings and
dividends will grow at a rate of 50% [D1 = D0(1 + g) = D0(1.50)] this
year and 20% the following year, after which growth should return to
the 6% industry average. If the last dividend paid (D0) was $2.25,
what is the value per share of your firm's stock? Round your answer
to the nearest cent. Do not round your intermediate computations.(NON
CONSTANT GROWTH VALUATION)
#7 REPAYING A LOAN
While Mary Corens was a student at the
University of Tennessee, she borrowed $12,000 in student loans at an
annual interest rate of 8.10%. If Mary repays $1,500 per year, how
long (to the nearest year) will it take her to repay the loan?
#8 CASH FLOWS
The Moore Corporation had operating
income (EBIT) of $950,000. The company's depreciation expense is
$237,500. Moore is 100% equity financed, and it faces a 40% tax rate.
1. What is the company's net income?
2. What is its net cash flow?
#9 PRICE EARNING RATION
Needham Pharmaceuticals has a profit
margin of 5.5% and an equity multiplier of 2.5. Its sales are $100
million and it has total assets of $60 million. What is its ROE?
Round your answer to two decimal places.
#10 INCOME STATEMENT
Pearson Brothers recently reported an
EBITDA of $7.5 million and net income of $1.5 million. It had $1.875
million of interest expense, and its corporate tax rate was 40%. What
was its charge for depreciation and amortization?
#11 PRESENT VALUE OF A SINGLE PAYMENT
What is the present value of a security
that will pay $10,000 in 5 years if securities of equal risk pay 9.2%
PUT CALL PARITY
The current price of a stock is $32,
and the annual risk-free rate is 6%. A call option with a strike
price of $29 and 1 year until expiration has a current value of
$7.30. What is the value of a put option written on the stock with
the same exercise price and expiration date as the call option? Round
your answer to the nearest cent.
#13 DEFAULT RISK PREMIUM
A Treasury bond that matures in 10
years has a yield of 5%. A 10-year corporate bond has a yield of 10%.
Assume that the liquidity premium on the corporate bond is 0.8%. What
is the default risk premium on the corporate bond?
#14 EXPECTED RATE OF RETURN
Washington-Pacific invests $5 million
to buy a tract of land and plant some young pine trees. The trees can
be harvested in 10 years, at which time W-P plans to sell the forest
at an expected price of $10 million. What is W-P's expected rate of
return? Round your answer to two decimal places.
#15 yield to maturity and current
You just purchased a bond that matures
in 15 years. The bond has a face value of $1,000 and has an 8% annual
coupon. The bond has a current yield of 8.37%. What is the bond's
yield to maturity? Round your answer to two decimal places.
#16 number of period for a maturity
You have $48,564.75 in a brokerage
account, and you plan to deposit an additional $2,500 at the end of
every future year until your account totals $400,000. You expect to
earn 9.4% annually on the account. How many years will it take to
reach your goal?
#17 required of return
Assume that the risk-free rate is 3.5%
and that the expected return on the market is 10%. What is the
required rate of return on a stock that has a beta of 0.8?
Assume you have been given the
following information on Purcell Industries:
Current stock price = $16
Strike price of option = $11
Time to maturity of option = 2 months
Risk-free rate = 6%
Variance of stock return = 0.15
d1 = 0.28449
N(d1) = 0.48652
d2 = 0.0532
N(d2) = 0.64298
According to the Black-Scholes option
pricing model, what is the option's value? Round your answer to the