Question Description

Assume you are given the following
relationships for the Clayton Corporation:

Sales/total assets

1.8

Return on assets (ROA)

4%

Return on equity (ROE)

8%

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.

%

#2

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?

#3

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

#4

DPS CALCULATION

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 = $  

B

C

D

#5

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.

#6

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%
annually?

#12

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
yield

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?

%

18

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
nearest cent.

$