22. A broker is considering buying a dividend-paying stock. The dividend will be paid at the end of the year. The analyst consensus is the stock will be worth $36 in one year. The company pays a $2.25 annual dividend (ex-dividend date is not a consideration, the broker will receive the full $2.250, and the broker expects a 12% rate of return.
What is the highest price the broker should be willing to pay for the stock?
49. A company is preparing a PRO FORMA balance sheet. The company forecast $10 million in projected sales. The projected cash needed is 6% of sales, accounts receivable are 19% of sales, and PP&E are 50% of sales. Accounts payable has been 12% of sales, historically. Total shareholders’ equity is $6.3 million. The company has no long-term debt.
What is the total discretionary amount for the PRO FORMA balance sheet?
23. A person buys shares of a company at $45. They recently paid a $2 annual dividend which is expected to grow by 10% per year.
What is the expected return per year?
25. The market rate of return is 9%. The face value of the bond is $100, the coupon rate is 9% with annual compounding, and the bond matures in 10 years.
What is the value of the bond?
27. A company issues bonds at a market price of $925. The face value is $1000. The bonds mature in 10 years, and the coupon rate is 6% compounded semiannually.
What is the yield to maturity (YTM) on the company’s bonds?
29. A bond pays $27.50 semiannually, matures in 9 years, and is currently priced at $1090.
What is the yield to maturity for this bond?
14. A company’s year-end balance sheet for 2013 shows the following:
Accounts receivable: $900
Inventory: $1200
Fixed assets: $1000
Accounts payable: $1300
Sales: $4000
Salaries: $275
What is their fixed asset turnover ratio?
17. A teacher won $100,000 and invests this money for 5 years at an interest rate of 4% (compounded annually).
How much will the teacher have in principal and interest at the end of the 5 years?
18. An accountant is 40 years old with an anticipated retirement age of 70 years old. The accountant plans to save $6000 per year at the end of the next 30 years to fund retirement.
How much will the accountant have upon retirement, if the accountant is able to earn 4% annually on this investment?
19. An investor deposits $2,000 per year (beginning today) for 10 years in a 4% interest bearing account. The last cash flow is received 1 year prior to the end of the tenth year.
What is the investor’s future balance after 10 year?
42. A company would like to invest in a CAPITAL BUDGET project that will be worth $500,000 in 40 years.
How much should the company invest today, assuming an average inflation rate of 2% and a 10% annual return?
37. A company has a before-tax cost of common equity of 14%, a pre-tax cost of debt 6%, a cost of preferred equity 8%, and a marginal tax rate of 34%. The current market value of the company is $150 million, with $75 million common equity, $50 million debt, and $25 million preferred equity.
What is the company’s Weight average pre-tax cost of capital? (WACC)
43. A company has a market value of $500 million.
It has a market value of equity of $250 million, a market value of long term debt of $150 million, and a market value of short term debt of $150 million.
The cost of equity is 12%, the cost of long-term debt is 8%, and the cost of short term debt is 6%. The marginal tax rate is 35%.
What is the Weight average pre-tax cost of capital (WACC) for this company?
47. Year 2010 ending retained earnings were $2,000,000. Year 2011 forecasted sales are $100,000 with a 25% net margin and 20% dividend payout ratio.
What are the forecasted retained earnings for year 2011?
46. A corporation established its projected sales at $210 million. It is using its current year balance sheet as a basis for creating a PRO FORMA balance sheet. They estimate cash will be 7% of projected sales, accounts receivable will be 19% of projected sales, and PP&E will be 55% of projected sales. Accounts payable are estimated to be 12% of projected sales. Owners’ equity is $34 million. Long term debt is $90 million. Additionally, the firm raised $12.9 million of equity capital.
What is the amount of discretionary financing needed?
39. Partial financial data for a company is as follows:
Assets: $10,000,000
Liabilities: $4,000,000
Equity: $6,000,000
Sales: $25, 000,000
Net Income: $5,000,000
Profit margin: 20%
Dividend: $5000, 000
Dividend payout ratio: 10%
ROA: 50%
ROE: 83%
What is the sustainable growth rate for the company?